Europe is ripe for investment. Thanks to a deeper penetration of the Asian market and more affordable share prices, now might be the right time to invest.
Analysis of why now is a good time to invest in European companies
The European economy is on an upswing, and with this comes a new opportunity for investors. This may be the best time in years for capitalism to thrive in Europe. For many years after the 2008 recession, Europe was considered a risky investment destination. But now things are improving vastly, and with American companies pulling out of their traditional positions in Europe due to the tax cuts passed by the previous Trump administration, there is a lot of room for foreign investors to step in and take advantage of various opportunities. When it comes to investing, a rule of thumb is to look where no one else is looking, and right now Europe looks ripe for the picking, mainly because things are starting to settle down after the uncertainty that Brexit brought about and because at the moment stocks are relatively cheap.
An undeserved reputation
One the main reasons US investors in the past have shunned European stocks comes down purely to domestic bias; US investors are simply more comfortable with the idea of working within familiar realms of financial institutions. The US has also been worried that investing in Europe may put them at risk of losing their money due to the high levels of debt. However, it seems that the US is now reconsidering its point of view and has begun to invest more into European countries. European stocks have lagged; the biggest European ETF, Vanguard FTSE Europe (VGK), returned a mere 6% over the span of 10 years compared to the 15% achieved by top companies listed on FTSE and S&P 500 index markets, the largest of the US being the SPDR S&P 500. And yet, there’s a light at the end of the tunnel. Don’t be surprised if there are investors out there right now calling Europe the Rocky Balboa of investment opportunities, here’s why…
Brands to the rescue
The financial landscape of Europe has changed; it’s not the Europe of yesteryear. The largest companies are no longer British, nor are they industrial firms or banks, and their biggest customers are Asians. These are companies that see the intrinsic value of brands. Key amongst such companies would be LVMH Moët Hennessy-Louis Vuitton, and while it ranks only 13th in the US by market capitalisation, that cap came in at almost $400 billion, which places it in line with US retail giant, Walmart. But how could this conglomerate be as big as Walmart? When one takes into account that LVMH owns some of the world’s most luxurious brands, things become significantly clearer. The lists reads like the who’s who of style and opulence: fashion designers – Louis Vuitton and Christian Dior, jewelers – Chaumet and Bulgari, and champagne makers Krug and Dom Pérignon are just come of the world-class brands owned by this one global magnate. Singing from the same hymn book is cosmetics giant L’Oréal (LRLCY) with a market cap of $256 billion. Believe it or not, that’s bigger than US soft drink giant, Coca-Cola! In addition to selling its own range of cosmetic products, L’Oréal also sells Ralph Lauren and Giorgio Armani products, and like LVMH, has seen its growth in the Asian market skyrocket, mainly by 35% in China back in 2019. Another European company that has become an overseer of a massive portfolio for consumer products is Anheuser-Busch InBev (BUD). Based in Belgium, this multinational conglomerate owns a staggering 500 beer brands, inducing and clearly not limited to Beck’s, Budweiser and Stella Artios. The message that is quite apparent is that Europe is home to companies that can go toe to toe with the best that the US has to offer, but thanks to such diversified portfolios and the recovery from Brexit, shares in many of these companies are more affordable than shares in US companies.