- Saxo Markets says few Aussies invest in European markets, despite having global leaders across various sectors
- Saxo says European markets showing strong signs of recovery with STOXX Europe 50 index up 10.2% YTD
- Ongoing geopolitical tension and prospect of a second US Donald Trump presidency raising demand for European defence stocks
While Europe is a popular and sought-after holiday destination for Australians, when it comes to investing it seems Australians prefer to invest domestically or in the popular and well-known US markets, like the tech-heavy Nasdaq.
Danish-headquartered online trading platform Saxo Markets, part of Danish Investment bank Saxo Bank, says few Aussies invest directly into European equities and should consider looking further afield than the ASX or US markets.
“European markets are largely overlooked by Aussie investors despite having industry leaders in sectors ranging from industrials and health care to luxury goods, food and beverages, and financial services,” Saxo head of equity strategy Peter Garnry told Stockhead.
Garnry says even Saxo Australia’s most popular European equity (by the number of clients with open positions) – France’s luxury brand LVMH Moet Hennessy Louis Vuitton – is held by just 7% of Saxo Australia’s total active clientele.
In its Quarterly Outlook report for Q2 2024 Saxo has taken an overweight position on European equities for the quarter, compared to a neutral position on US equities and negative position on Japanese equities.
The trading platform’s conviction follows strong YTD data, with the STOXX Europe 50 index up 10.2%, the NASDAQ 100 returning 11.28% and the ASX 200 2.3%.
Here’s Garnry’s top three reasons to invest in European equities.
1. Investor sentiment is improving on the European economy
Garnry says in a positive sign green shoots appear to be everywhere in the European economy.
He says the Sentix sentiment reading on the Eurozone economy six months ahead has turned positive for the first time since February 2022, is approaching the average levels seen during expansion periods before the pandemic, and continues to increase further.
“The Bank of Italy’s Eurocoin growth indicator, which is a real-time GDP measure, also went positive in March for the first time since August 2022 indicating that Europe’s economy is coming out of its recession,” he says.
“Natural gas and electricity prices in Europe are down 34% and 42% from the 2023 average respectively which alleviates pressures for Europe’s industry and households. Lower energy prices will help going forward.”
2. Lower P/E ratio and better diversification
Garnry says over the long run (10+ years), the US economy has a structurally higher growth rate than Europe, so US equities are seen as more strategically attractive than their European equivalents.
However, he says European equities offer gems with good value and potential for surprise.
He says European equities currently offer a lower P/E ratio – providing more upside potential – and better sector diversification than US equities.
Top five Euro-denominated stocks traded on Saxo Australia
| Name | Country |
|---|---|
| LVMH Moet Hennessy Louis Vuitton | France |
| ASML Holding NV | Netherlands |
| Saipem | Italy |
| Vallourec | France |
| Shell PLC | Netherlands |
The five largest industries in the European equity market are health care, industrial goods and services, banks, food beverage and tobacco, and technology.
“One of the biggest changes from last year is that Nestle is no longer the largest constituent in the STOXX 600 Index as it has been overtaken by Novo Nordisk as the market pushed the Danish pharmaceutical company higher amid a bonanza for its weight loss drug Wegovy,” Garnry says.
“Another rising star has been SAP that was not part of the top 10 a year ago, but has risen to become the seventh largest stock in the main index.”
SAP SE is a German multinational software company, which develops enterprise software to manage business operations and customer relations.
“Underneath the surface of the usual European mega caps lies a group of highly profitable and high-quality companies that investors can consider – from InterContinental Hotels (UK) and Hermes (France) to Ferrari (Italy), STMicroelectronics (France/Italy), and Inditex (Spain),” Garnry says.
“Diversification across geographies, sectors, and asset classes is critical for any astute investor’s long-term returns, ensuring their portfolio flourishes in the good times while protecting its value in challenging times.”
3. Geopolitical tensions raises demand for European defence stocks
Garnry says the ongoing war in Ukraine, Middle East tensions and the prospect of a second Donald Trump presidency in the US have driven European defence stock returns.
“Trump’s threats against ‘free riding’ NATO member states have driven continued strong European government orders from listed defence companies, stoking exceptional European defence stock returns,” he says.
Saxo in Q1 2024 saw a 148% increase in the number of its clients around the world investing in European defence stocks, compared to the same quarter a year prior.
“The European defence industry remains one of our favourite equity themes as the increase in military spending in Europe will continue over many years,” Garnry says.
“Even in the case of a ceasefire in Ukraine the EU military spending will continue to climb.”
Ways to invest in European markets
Garnry notes that investors are often discouraged from purchasing international stocks due to perceived complexities.
However, he says that using a platform like Saxo makes the process straightforward with access to 18 different European equity markets.
“We also do multi-currency accounts so you can save on FX (foreign currency) fees when investing in European markets,” he says.
*All figures accurate as of May 28, 2024.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
At Stockhead, we tell it like it is. While Saxo Markets is a Stockhead advertiser, the company did not sponsor this article.
