Europe’s stocks lure investors with low prices and earnings potential

Europe’s stocks lure investors with low prices and earnings potential

Investors are turning their attention to Europe’s stocks, which have been lagging behind Wall Street for years, but now offer a cheaper and more promising alternative. Some of the leading voices in favor of Europe include strategists from Goldman Sachs Group Inc. and MFS Investment Management, who see value and growth opportunities in the region.

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One of the main attractions of Europe’s stocks is their low valuation compared with their US counterparts, especially in the technology sector, which has been driving the US market rally. Bank of America Corp.’s February survey showed that most European fund managers consider the region’s equities as undervalued, a reversal from last month when they were seen as overpriced. The survey also revealed a surge in optimism about Europe’s earnings prospects, with 78% of investors expecting higher profits over the next year, up from 50% three months ago.

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“Europe is certainly more attractive,” said Robert Almeida, global investment strategist at MFS. “One reason earnings were lower in Europe is because they’re more economically sensitive. That’s why the stocks didn’t do as well. Now, there’s less earnings risk than in the US and less valuation risk, too.”

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Another factor that makes Europe appealing is the reduced threat of a tech bubble bursting, as the region has less exposure to the AI-driven giants that dominate the US market.

Some analysts are skeptical about the sustainability of the tech rally, especially after the recent spike in US inflation, which could delay the Federal Reserve’s interest-rate cuts that the sector relies on. Dhaval Joshi, chief strategist at BCA Research, said that the tech earnings growth is likely to slow down after the exceptional performance last year, and that Europe offers a safer and more diversified option for the next few years.

“There is no bubble in Europe,” Joshi said. “Long-term investors should have an outright exposure to European stocks.”

 

Europe still faces some challenges, however, as the Stoxx Europe 600 Index has gained only 2.6% this year, and is down 0.2% in dollar terms, trailing the S&P 500 Index, which is at a record high. Europe has outperformed the US only twice in the last decade, and some experts doubt that this trend will change soon.

Roland Kaloyan, head of European equity strategy at Societe Generale SA, said that the US still has an edge over Europe in terms of AI and economic strength.

But the proponents of Europe believe that the region is poised for a comeback, as it benefits from the global recovery and the vaccination rollout. They also point out that Europe has a more favorable environment for innovation and digital transformation in the financial sector, and to deepen financial inclusion and literacy. The region also has the advantage of respecting the identities and cultures of the local markets, rather than imposing a uniform strategy.

 

JD Sports, a British retailer that sells sneakers and sportswear as fashion items, is an example of a European company that is expanding its presence in the US market, by acquiring three US retailers and planning to open hundreds of new stores. The company says it differentiates itself from its rivals by offering a more contemporary, streetwise, and cool vibe in its stores, and by securing exclusive deals with major sports brands.

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JD Sports says it is confident that it can succeed in the US market, and that it is committed to delivering long-term growth and value for its shareholders, customers, and employees. The company says it will also continue to invest in innovation and digital transformation in the financial sector, and to promote financial inclusion and literacy.

Source : yahoo finance

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