SSGA: The case for European equities

SSGA: The case for European equities

12 september 2023

Aandelen Europa
Euro.jpg

Europe’s policy response to the pandemic was constructive, but then the Russia-Ukraine War broke, pouring cold water on the positive views on Europe’s revival.

Europe’s competitiveness gap

When the Russia-Ukraine War broke out, were not only acutely negative scenarios suddenly on the table, but Europe’s old problem of cohesion was being replaced by a new problem of loss of competitiveness. For years, the trouble had been that Germany was seemingly 'doomed to boom' while Greece and Italy seemed doomed to underperform. In an ideal world, that competitiveness gap would be favorably closed by less-competitive economies becoming more competitive.

'In practice, over the past year or so, the eurozone’s competitiveness gap has been narrowing in the wrong way: rather than Italy becoming more like Germany, Germany is becoming more similar to Italy', State Street Global Advisor’s Chief Economist Simona Mocuta explains.

Europe’s resilience underappreciated

But this doesn’t spell the end of SSGA’s positive view on European equities. The eurozone’s resilience, including its weathering of the energy crisis last winter, continues to be underappreciated. Eurozone’s real GDP grew 3.4% last year, defying predictions of a recession, and the 0.3% expansion during the second quarter of 2023 has pushed forward the onset of any potential recession.

The case for European equities

Looking at equities, the technology led outperformance that has continued to dominate the investment landscape has masked the fact that Europe continues to dominate multiple sectors that deserve our attention. All things considered, investors should do well to look closer at a region that continues to surprise favorably despite the tough odds that it has faced recently.

'Instead of fretting over a lack of technology leadership in Europe, investors should use periods of technology exuberance (such as 2020 and thus far in 2023) to shift their attention to the many sectors in which world-beating European companies are dramatically overrepresented and can easily drive Europe to global outperformance', Mocuta said.

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