(BFM Bourse) – In 2022, European equities were popular with managers because they were considered cheaper than their American counterparts. For the current year, the attractiveness of European markets should be confirmed thanks in particular to the rise of the euro against the dollar.
The Old Continent is resisting: after several years when the United States had become the focal point for investors, including Europeans, 2022 has reversed the situation and this trend is continuing at the start of 2023.
Last year, to limit losses on equities, it was better to bet on Europe than on the United States. The indices of European countries limited the losses, less than 10%, when the American reference market, the S&P 500, was down almost 20%.
The performance gap continued in the first weeks of 2023, with 4.7% gains for the S&P 500, while Paris and Frankfurt are currently hovering around 8% growth.
“We are moving away from the recession”
Economically, “the configuration takes the pessimists upside down,” explains Sophie Chauvellier, manager at Dorval AM. Several news items may have given European companies more momentum, starting with the rapid reopening of China, a much more important market for them than for American multinationals. In Paris, this is particularly the case for the luxury giants, heavyweights of the rating.
In addition, “we are moving away from the recession with energy which is no longer an issue, thanks to the savings in consumption which have been granted”, and to milder temperatures, allowing gas stocks to remain high, continues Sophie Chauvellier.
The Richelieu bank also observes a “reversal of perception” favorable to Europe: the economic indicators came out better than expected in the last quarter of 2022 in the euro zone, unlike the United States.
Cheaper European stocks
Other financial reasons support this trend. For institutional investors, the start of the year marks “the end of the safe-haven allocation” of funds to the zone perceived as the safest in an uncertain context: the United States and its dollar, according to Christopher Dembik, director of the Saxo Bank macroeconomic research. “We are seeing a clear redeployment of capital”, which will “benefit the main European indices”, he notes.
The rise of the euro against the dollar, after the common European currency hit its lowest point in 20 years at the end of September, is helping to make investing money in the euro zone more attractive. The recovery of the euro is supported by the anticipation of a stricter monetary policy of the European Central Bank compared to that of the American Federal Reserve.
Despite the recent rise, European equities appear to managers to be even less expensive than American ones. To establish this observation, they compare the profits of companies with their stock market valuations: the further the two figures are, the more the stock market price of a company is considered expensive, which slows down purchases.
“In the United States, we have certainly returned to valuations a little closer to historical averages, but we remain above: the market may not have corrected enough”, interprets Raphael Thuin, head of market strategies of capital at Tikehau Capital.
“It’s a little less true in Europe, valuations are below historical averages, even if we haven’t reached a low,” he compares.
Differences linked to the “composition of indices”
Same observation at Oddo BHF AM, where it is considered that “Europe seems better armed in the face of rising rates, in particular because the risk premiums for American equities” are “not generous”, according to the asset manager.
But many of these differences are linked to “the composition of the indices” nuance Mikael Jacoby, head of continental brokerage at Oddo. The American markets are very marked by the presence of technology companies, which are paying dearly on the stock market and whose flagships, such as Meta, Alphabet or Tesla, have also unscrewed in 2022.
“The difference between the two areas is very much in the behavior of technology” and it is “difficult to predict” if the trend will remain the same, he believes.
(With AFP)
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