Many people are mourning the loss of their planned 2021 European trips. However, EU stocks offer another way to experience European culture without even stepping foot on a plane…
Introducing European stocks. Yes, they are not new, but they are a foreign market that many budding investors often overlook when building their investment portfolios.
So what value do companies in the European market offer investors, and how can Australians gain access?
A look into the European market
As one of the world’s oldest continents, Europe has often been regarded as behind-the-times and old fashioned when it comes to innovation and technological advancements. For this reason, many investors opt for more exciting perceived opportunities in other global markets such as China and the US.
However, according to some experts, the European market is ripe for growth. Especially as it continues to settle down after the disruptions of Brexit.
The vast majority of investment banks are backing EU stocks to outperform their US peers through the remainder of the year and into 2022. This is because the region’s cyclical indices make it more sensitive to the re-opening rebound.
Currently, European equities are relatively cheap when compared to US equities. This, combined with continued earnings growth, which is higher than US equities, makes an interesting case for investors.
A region for income investors
Europe is also well known for its dividends. Which makes it an excellent investment region for income investors.
The iShares STOXX Europe Select Dividend 30 UCITS ETF, for example, has returned 17.65 per cent year-to-date and pays a dividend yield of around 6.5 per cent. This is pretty impressive when compared to an S&P 500 ETF such as Vanguard S&P 500, which has returned 18.9 per cent year-to-date, but has a dividend yield of just 1.3 per cent.
With all the upsides, there are some downsides that the European market has experienced recently.
A few downsides to EU stocks
European market continues to digest the fallout of the German election in September. This signalled some uncertainty for investors. German reticence to spending big is likely to be nipped in the bud in the name of the emergency transition. This will inevitably have an impact on yields and the cost of money. Despite this, German stocks still climbed after the election, according to MarketWatch.
In early September, The European Securities and Markets Authority (ESMA), flagged its concerns in its trends, risks and vulnerabilities report. It pointed to a prolonged period of risk to institutional and retail investors of further market corrections.
Further to this, investors were also demonstrating concern promoted by hawkish rumblings from the European Central Bank (ECB) over the possible paring back of pandemic stimulus in Europe, which have kept European equities rangebound.
The winners of Europe
What are some of the European companies leading the booming European market?
LVMH Moet Hennessy-Louis Vuitton SE (EPA:MC)
One of the largest companies gaining worldwide attention is quintessentially European: LVMH Moet Hennessy-Louis Vuitton SE.
With a market cap of over USD$318.49 billion, the company’s shares have quadrupled in a little over four years.
Although revenues dropped in 2020 due to the pandemic, its first half result in 2021 illustrated record revenues, up 56 per cent from the year ago period.
ASML Holding NV (ASM: ASML)
Up nearly 100 per cent year-to-date, ASML Holding NV is one of the key suppliers to computer chip companies. It recently forecasted that it would have revenue growth of around 11 per cent annually through 2030. This forecast is driven by booming demand for its products.
The company’s stock has also reflected its strong outlook with a market cap of around USD$261.10 billion. This makes it Europe’s largest technology company.
Adyen (AMS: ADYEN)
Dutch payment and e-commerce company, Adyen, has seen its shares rise 73 per cent this year. In September, one of the leading buy-now-pay-later platforms, Zip announced its global partnership with Adyen, proving that the Dutch company is a worthy competitor to its US counterparts.
Europe’s stock listings have also been booming in 2021. There were 42 IPOs in Q3 alone, with proceeds of over USD$9 billion, the highest number for a decade. The last time there were more European IPOs in a Q3 was in 2007, with 99 deals.
One of the most noteworthy listings in 2021 was British money-transfer app Wise PLC (LON:WISE). The company debuted on the market in London’s first ever direct listing in July, with a valuation of around USD$12 billion, beating its market expectation of USD$2.6 billion.
Another standout was Danish consumer-review site Trustpilot Group Plc (LON:TRST), which listed in March. The company’s share price rose as much as 16 per cent on its first trading day in London. Trustpilot Group Plc was the first EU-based company listed in London after Brexit. It was hailed at the time as a promising sign that London was an attractive venue for continental companies following its departure from the Union.
So, should investors invest in EU stocks?
Despite the European markets’ ups and downs, investors are still seeing ample opportunities and future growth prospects in the region.
Global markets allow investors to diversify their portfolios with stocks and industries beyond their own backyard. You reduce portfolio risk by owning assets affected by different macroeconomic events and changes worldwide.
Like all investments, it’s recommended that investors do their research into the European industries and companies you want to invest in. Consider the option of a long-term investment strategy, and never invest more than you can afford to lose.