“After a decade of stunning performance” on Wall Street, global investors are feeling uneasy about the dominance of US stocks in their portfolios, says Sharon Bell in the Financial Times. European equities could offer better value. The energy shock has made the last few years a tricky period for European markets, opening a large transatlantic valuation gap. US shares trade on a price/earnings ratio of over 21, compared with 14 in Europe and around 12 in the UK.
European stocks have at least managed to hold their own this year, says Bastien Bouchaud in Les Echos. The Euro Stoxx 50 index has gained nearly 12% so far in 2024, just a smidge behind the S&P 500. Inflation has cooled faster on the “old continent” than in the US, with the European Central Bank poised to start cutting interest rates as early as June. Easier money usually finds its way into financial markets, which will support share valuations.
European markets: rise of the Granolas
Much as US markets have been driven by the “Magnificent Seven” tech firms, so too a handful of European giants have made the running. Dutch chip specialist ASML has accounted for about a fifth of the Euro Stoxx 50’s gains this year alone. Bank Société Générale has dubbed the outperformers the “Seven Wonders of Europe”, says Jamie Chisholm in MarketWatch. The group includes ASML, pharma group Novo Nordisk, luxury conglomerates LVMH and Hermès, software play SAP and industrials Siemens and Schneider Electric. Many of them also feature in Goldman Sachs’ “Granolas” category, a pan-European grouping of 11 top stocks that also includes UK firms AstraZeneca and GSK.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The Granolas make up about a quarter of the Stoxx 600 market and contributed 60% of the gain in the year to 1 March, says Michael Fahy in Investors’ Chronicle. The group collectively trades at a roughly 60% valuation premium to the wider European market, but is still on a discount of 30% to the Magnificent Seven. Over three years they’ve broadly “matched the returns of the US tech giants”, but with less volatility. No European firms rise to the trillion-dollar valuations of the biggest US companies, says Jocelyn Jovène for Morningstar. But the Granolas do represent a more diversified grouping than the US tech giants, taking in healthcare, technology and both cyclical and defensive consumer themes.
European stock markets have transformed over the past decade, says Frédérique Carrier of RBC Wealth Management. No longer the preserve of stodgy banks and telecom groups, today's fast-growing technology, healthcare, industrials and consumer discretionary firms together account for 57% of the MSCI Europe ex-UK index, up from 37% in 2011. “Bloated conglomerates” have slimmed down into leaner operators: return on equity rose from 9.8% in 2011 to 13% last year. Europe may lack the dynamism of the US or emerging economies, but investors often overlook the fact that about 55% of revenue comes from outside Europe. “No longer wan and listless... European equities are emerging from their chrysalis with newfound potential.”
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
The top stocks in the FTSE 100After a year of strong returns for the UK’s flagship index, which FTSE 100 stocks have posted the best performance in 2024?
-
A junior ISA could turn your child’s pocket money into thousands of poundsPersuading your child to put their pocket money in a junior ISA might be difficult, but the pennies could quickly grow into pounds – and teach them a valuable lesson about money
-
Is there value in European equities?European equities are in the bargain basement owing to a stagnant economy – but tread carefully
-
Will European stocks bounce back?European stocks have looked unattractive for some time – will they bounce back?
-
Euro stocks should be soaring. So, why aren't they?Why are Euro stocks not performing, and how is politics affecting their growth?
-
Overlooked European stocks that offer income and growth potentialProfessional investor Alex Wright highlights three European stocks with recovery potential and value
-
France’s government collapses – could it trigger the next euro crisis?Briefings France’s government has toppled after losing a vote of no-confidence, plunging the euro zone’s second-largest economy into turmoil. Is this 2012 all over again and should Europe be worried?
-
Macron has failed France – but there is still plenty to invest inCover Story Emmanuel Macron won a convincing victory in France's presidential election, but he has no clear vision for halting the country’s decline. Frédéric Guirinec looks at the state of France and picks 20 French stocks to buy.
-
An end to investing in RussiaNews Foreign investors have abandoned Russian markets - and index compiler MSCI could remove it altogether from its stock and bond benchmarks.
-
Russian stocks suffer as the world fears it will invade UkraineNews Despite a booming economy, Russian stocks look extraordinarily cheap – but if it invades Ukraine, the Russian stockmarket will become all but uninvestable.
