European Equities
December 2024
- Europe as a stock market region is a continent, and there are some strong differential economic performances across that region
- European equities are modestly valued versus history and are far cheaper than the US equity market
- As bottom-up investors managing focused, high-conviction portfolios we can invest based on where we see the best opportunities.
1. What do you think could be the biggest challenge or opportunity for clients in 2025?
For those who think they are getting diversification through investing in global equities, they are mistaken as the global equity indices are now little more than ‘US lite’. It is clear the sentiment is weak on Europe and that is due to some real economic challenges that exist within the large, core economies, politics that are somewhat broken, excessive bureaucracy that crushes productivity and a transition to net zero that is being badly managed and ideologically driven, rather than engineering-led.
European equities are exposed to many of the key structural growth drivers in global economies, are modestly valued versus history and are far cheaper than the US equity market, which is very expensive versus history and highly concentrated into a small number of technology stocks.
2. What do you see as the one major investment opportunity for you in 2025 and how can you capitalise on it?
Europe as a stock market region is a continent, not a single country, and there are some strong differential economic performances across that region with some countries growing in line with the US economy. We also think the politics will cure itself, or have a cure forced upon it, and the re-election of President Trump represents a profound disruption in that regard. Importantly, as bottom-up investors managing focused, high-conviction portfolios we can choose where to invest based on where we see the best opportunities; the companies we are invest in are, largely, exposed to some of the key structural trends that we see driving global economies and we can access such opportunities at attractive valuations. Consequently, we remain positive on the prospects for European equities.
3. What is the biggest risk to your asset class next year and how can you mitigate that risk, or even turn it into an advantage?
The sense of European drift, undermining investor confidence towards European equities, has been added to by the highly acclaimed “Draghi report”1, On 9 September 2024, Mario Draghi presented his report “The Future of European Competitiveness,” ordered by the president of the European Commission Ursula von der Leyen which did a good job of highlighting key European weaknesses. We would summarise those as: excessive regulation emanating from ever-expanding government/EC bureaucracies that cripple productivity growth; and sky-high energy prices, resulting from suboptimal energy policies. The political response to the Draghi report was enthusiastic but it does not seem to have led to any urgency to enact change. We think the re-election of President Trump, supply-side changes in the US, a reinvigorated business culture and more pro-growth energy policies are going to provide a profound challenge to the world view of European political elites, which they will have to rise to. A renewed focus on reining in productivity-destroying bureaucracies and more sensible energy policies, that recognise the need for decarbonisation but follow a more evidence based/engineering led approach, would do wonders for European growth. This is very much a medium/long-term hope but given how low sentiment is towards the continent we think it worth evaluating.
Niall Gallagher manages European and Continental European equity strategies at GAM Investments.
1 On 9 September 2024, Mario Draghi presented his report “The Future of European Competitiveness,” ordered by the president of the European Commission Ursula von der Leyen.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.