European stockmarkets will bounce back
Last year was one to forget for European stockmarkets. But 2021 should prove better.
Investors in Europe are hoping that 2021 proves a duller year than 2020. Last year was one to forget, with the pan-European Stoxx 600 finishing down by 3.8%. The pain was not evenly shared. Spain’s IBEX finished the year down almost 15%, with France’s CAC falling by 7.1%. More happily, Germany’s Dax delivered a positive total return of 3.5%.
The MSCI Europe index, which includes British shares, posted its worst annual performance since the 1980s relative to the world average last year, says Morgan Stanley in a research note. European earnings may have fallen by 33%, more than double the global average of 15%. But a strong cyclical recovery is likely to take hold later this year, triggering a multi-year surge in profits. That should feed into stock prices, which closely track earnings trends – in 2004-2005, the last time the region enjoyed two successive years of 20%+ profit growth, the MSCI Europe index returned 33%.
European stockmarkets are a decent bet
The underperformance of European markets has little to do with geography and almost everything to do with sectoral make-up, says Richard Cookson on Bloomberg. Around 28% of large-cap US stocks are technology firms. In Europe that figure is 7%; in the UK it is just 1.5%. Almost 4% of the European market is made up of beaten-down energy stocks, compared to 2% in America. Indeed, if you correct for sectoral weighting, European and American stocks would have “pretty much the same valuation”.
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
Surging tech stock prices and the rout in the energy sector have “whittled away” at that problem, says Buttonwood in The Economist. Tech firms now account for 14% of the Euro Stoxx 50, an index of eurozone blue-chips, making it the continent’s biggest sector.
That said, the case for European shares still rests squarely on the outlook for those hated “old-economy cyclical stocks” (banks, energy and industrials). A post-pandemic reflation trade should help them outperform over the next two years.
My worry is that we will get an inflation spike in major economies later this year, says Cookson. That could scare central bankers into hiking interest rates. If that happens then pricy US stocks would feel most of the pain, but European cyclicals would not be spared.
If interest rates and the dollar do rise, then European equities look better than the alternatives, says Buttonwood. Tighter global monetary policy would be especially painful for emerging markets, leaving Europe the “sounder bet”.
Fortune will “favour the brave” for European equity investors in 2021, says Rodney Hobson for Interactive Investor. The key is to look for “solid, boring companies that can stand the shutdowns” and are ready to profit once the recovery begins.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
Watch out for fake Steven Bartlett video – you could lose thousands
Scammers are trying to tap into the Trump tariffs chaos, but knowing what to look out for could save you thousands of pounds, says Kalpana Fitzpatrick
By Kalpana Fitzpatrick
-
Can Donald Trump fire Jay Powell – and what do his threats mean for investors?
Donald Trump has been vocal in his criticism of Jerome "Jay" Powell, chairman of the Federal Reserve. What do his threats to fire him mean for markets and investors?
By Katie Williams
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocks
Opinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
By Cris Sholto Heaton
-
BP's 'long, painful decline' – and why next year could be even tougher
Opinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
By Matthew Lynn
-
Investment trusts tap the profits in exotic and obscure global markets
Opinion Peter Walls, manager of the Unicorn Mastertrust fund, highlights three investment trusts as he shares where he'd put his money
By Peter Walls
-
Falling revenues and mounting debt spell trouble for Jumia Technologies
Struggling African e-commerce platform Jumia Technologies looks headed for the exit, says Dr Matthew Partridge.
By Dr Matthew Partridge
-
Next reports £1 billion in annual profits for the first time – what's next for the retailer?
Clothing retailer Next has become only the fourth member of its sector to surpass £1 billion in annual profits. What does this mean for the company's future?
By Dr Matthew Partridge
-
Best of British bargains: cash in on undervalued companies in the UK stock market
Opinion Michael Field, Chief Equity Market Strategist, EMEA, Morningstar, selects three attractive UK stocks where he'd put his money
By Michael Field
-
Building firm Keller presents low debt and ample scope for growth
Geotechnical contractor Keller, which supports vital global infrastructure, boasts rising profits and a cheap valuation
By Dr Mike Tubbs
-
PZ Cussons share price down 75% in last decade – why it's one to watch
Opinion Once-strong consumer-goods business PZ Cussons is out of favour with the market. That spells opportunity for investors, says Jamie Ward
By Jamie Ward