European stock markets are stuffed with the kinds of companies likely to suffer as a result of changes happening in society, making those markets much less attractive investments, according to Ewout van Schaick, head of multi-asset investing at NN Investment Partners.
Mr Van Schaick estimated that among the companies listed on the US and European stock markets, there are three times more firms on Wall Street that have business models which will benefit from the changes than there are such companies in the eurozone.
He noted that while eurozone stock markets have lots of banking stocks, which are likely to suffer in the event of a recession, while the US market has more technology stocks, that are likely to be among the winners.
He said: “A much larger section of US companies is benefiting from the current environment than in Europe. Furthermore, Europe has a very large financial sector, which is one of the big problem areas of this crisis.
The differences in valuations makes us confident that the US equity market still has room to move higher, while the room for the European market is pretty limited at present. US equity valuations become much less frightening if the differences in sector compositions are factored in, For example, US tech is trading at a valuation of 27.0 times earnings, versus 33.8 in the eurozone, while US financials have a price to earnings ratio of 9.8 versus 6.9 for their European counterparts.”
Of the broader economic outlook in the eurozone. Charles Hepworth, investment director at GAM said: “Whilst we are seeing a rebound in activity, it is clear it will be a slow and fragmented process as consumers still remain in a state of nervous exhaustion with the effects of the pandemic and potential lockdown re-impositions.”
david.thorpe@ft.com
