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The Ryder Cup of Markets. Will Europe fight back?

Over the past decade, US stocks have delivered a return ~4x greater than European peers.

There have been valid reasons for this, with US equities receiving enormous inflows (eclipsing records), supported by strong buybacks and technology led heavyweights. Whilst Europe has its challenges, ~60% of sales exposure for listed companies, are outside of Europe.

 The expectation of interest rate cuts in Europe and many Asian and developing markets, should be supportive for global earners listed in Europe.

The valuation of the largest 600 stocks in Europe is below the 35-year average and the median. In contrast, valuation of the S&P 500 is close to the 90th percentile and ~30% above the median.

Investors have voted with their wallets. Since Russia’s invasion, European equity inflows have been negative.

What may catalyse a change?

  • Flows from global investors who are underweight and rebalance, locking in returns from US markets.

  • Investors seeking yield (Europe’s dividend yield is 2x the S&P 500)

  • More accommodative central bank policy in EU vs US

  • US election years historically have created choppy markets in the US

Much like the US, industry leaders are listed in Europe, yet are global earners. Macro dislocations and investor positioning can create idiosyncratic opportunities for stock pickers.


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