European companies have often been considered only grudgingly by investors. Away from the glitz and glamour of the US, the relative security of the UK or even the thrill ride of Latin America, Europe’s stock offerings have often fallen somewhere in between, with any allocations considered more of a nod to the benchmark than indicative of any overwhelming desire to invest.
But in recent years, this has begun to change. European companies have become more outward facing, repositioning themselves as facilitators of the global economy.
Recent research1 suggests that circa 60% of European company sales are generated outside of the bloc, double that of their US counterparts. Even in the context of an increased push towards deglobalisation, the continent hosts industry leaders in fields such as aerospace, healthcare and semiconductors, many of which provide the building blocks necessary to reroute supply chains away from the traditional pan-Asian routes.
The bloc does, however, have its own set of headwinds to contend with. For example, the war in Ukraine has had a disproportionate impact on European equities due to the region’s reliance on energy and commodities from Russia. Likewise, Europe’s reliance on China in sectors like luxury goods has left the continent sensitive to China’s economic malaise.
European stocks have historically been slower to rebound from crises than those in the US, and this remains the case today. That being said, fund managers appear to recognise both the near-term headwinds2 and the longer-term potential3 that exists within European equities.