Europe’s issue isn’t a capital shortage, it’s the price of policy uncertainty

Part III of the CIO Institutional Capital Markets series is live. Europe’s issue isn’t a capital shortage, it’s the price of policy uncertainty.

France is the tell: the OAT came within a few bps of 5% in early October, the Bund spread is around 146bp, and Italy now trades inside France, so this is an idiosyncratic premium, not a regional blowup.

Energy did the heavy lifting on September’s 3.8% print (1.71pts of it), which leaves the ECB balancing sovereign stress against sticky services inflation. Primary markets are still open, with €8.8bn of IPO proceeds in 9M, but Q3 was thin and the first quarter leaned on a single deal. In our stylized sponsor model, a turn of exit multiple moves equity IRR about 3.5 points against roughly 0.7 per 100bp on cost of debt, so multiple risk is the bigger lever here. Our view is selective deployment: underwrite the country, the capital structure and the cash flows, not a blanket regional discount.

Favor FCF-resilient, recurring-revenue, globally diversified names with limited refinancing risk, and stay disciplined on levered domestic cyclicals and sovereign-dependent assets. With Egypt, KSA and Europe now covered, the common thread is that capital allocation efficiency depends on more than headline valuations.