In 2025, developing country stocks outperformed developed countries. The MSCI developing countries index performed 24.16% over the past year, while the MSCI world index performed 13.78% over the past year. In my opinion, the main factor that saved European countries, in particular, was Trump's subsequent election, abandoning Europe on defense. Countries, especially Germany, realized they had to increase their defense spending. So, how would they do this? Through borrowing. Even Germany was forced to relax the borrowing limits it had adhered to for many years.
This created additional liquidity in the market, which had a positive impact on the stock markets. At this point, we need to emphasize a distinction. There were significant divergences between sectors within the country indices. For the reasons I just mentioned, we saw defense industry companies come to the fore. As you know, a similar situation occurred in our country. I predict that the defense industry will remain at the forefront for some time. Far from calming, the waters around the world continue to churn rapidly.
Amidst this turmoil, although Germany, Europe's driving force, is trying to manage its defenses, it is suffering serious blows in other manufacturing sectors. The primary reason for this is China. I've previously discussed Germany's dense bureaucracy, energy problems, and aging population in this column. I've also mentioned another problem: its lag in both export and import competition with China. Because China is increasingly producing high-tech capital goods, we're seeing a decline in exports to China from German manufacturers and exporters. Conversely, because the protection barriers against Chinese goods are low, we're seeing an increase in imports. This is putting domestic manufacturers in a difficult position. Why aren't precautions being taken? Why aren't tariffs imposed on Chinese goods like the US? In fact, steps were taken in this direction in the automotive sector last year. However, while declining, Germany still has significant automotive exports to China. This has been reversed due to the efforts of lobbies who don't want these exports to be disrupted.
Another issue is artificial intelligence and technological development. Europe is announcing support packages worth $1-2 billion in areas where the US and China have invested close to a trillion dollars. The state lacks the resources to subsidize companies in this area, and there's no common policy. Meanwhile, the oil of the new world is data, and data is essential for energy. Countries with access to energy resources and innovations like renewable energy and batteries will stand out. It's hard to count Germany among these countries. In short, the world is experiencing a new rupture, and it doesn't seem like Europe has much room in this rupture.
