Europe can deliver ‘high-quality growth’ despite strong headwinds

As an investor, sometimes you need to look beyond the wall of worry.

For example, there is every reason to be pessimistic about continental Europe at the present time. German Finance Minister Christian Lindner says his country is just “a tired man after a short night in need of a good cup of coffee.”

But the diverse problems facing the eurozone’s largest economy require more than caffeine.

The impact of rising energy costs and benefits is being felt across the bloc, while farmer protests in France and the Netherlands reflect broader grievances over bureaucracy and politics. But this unattractive backdrop shouldn’t stop you from considering the individual merits of major European companies – whose balance sheet strength lies behind Goldman Sachs’ forecast that the pan-European STOXX 600 index will rise 6 per cent this year.

Big names in Europe include ASML, the Dutch group that is the world’s leading supplier of semiconductor equipment, luxury goods Leviathan LVMH, and Novo Nordisk, maker of weight-loss drugs Ozempic and Wegovy.

Such is the call for these injections, as the $398 billion Danish company is expected this week to reach $1 trillion by 2030.

These companies and other major players in Europe are “global entities,” whose fortunes do not depend on the countries in which they are based, says Oliver Cullen, co-head of European equities at Invesco.

Companies listed in the eurozone receive less than a third of their revenues from this region.

“These companies are not universally loved – and can therefore be seen as ‘disguised’, or even ‘too cheap’,” Colin adds.

“The range of opportunities extends across a wide range of sectors – from Italian bank Unicredit, with its dividends and share buybacks, to French pharmaceutical giant Sanofi, whose drug development is on an upward trajectory.”

Oil major Total, a stake in European equity fund Invesco’s portfolio, trades on seven times forward earnings versus 11 times that of its US peer Chevron.

Zahrad Usmani, manager of the Martin Currie Global Portfolio Fund, which owns stocks such as ASML and L’Oreal, acknowledges the issues facing Europe. Its cyclical economy will be affected by the slowdown in China, although reducing the eurozone’s dependence on this country is one of the priorities of Ursula von der Leyen, President of the European Commission.

But Osmani believes that despite these headwinds, “Europe can be a good place to live.”

Over the past year, the stock prices of US technology companies have soared thanks to generative excitement in the field of artificial intelligence.

But Usmani says ASML technology is essential to achieving the massive increase in computing power and data storage required for the AI ​​revolution.

The software companies, France’s Dassault Systems and Germany’s SAP, are among “other strong long-term winners” from AI innovation, says Marcel Stutzl, director of the Fidelity European Fund and the Fidelity European Fund.

Fidelity European Trust owns ASML, Novo Nordisk and SAP. Its share prices have risen strongly over the past year, with analysts expecting further increases.

However, the fund’s share price is 8.78 per cent below its net asset value, reflecting the level of discontent surrounding European stocks, whose appeal has been overshadowed by its love affair with all things American.

There are even broader discounts – 10.78 per cent and 10.73 per cent respectively – in the European Opportunities Fund and the Henderson European Focus Fund, although both have large stakes in Novo Nordisk.

These cuts reflect British discontent with Europe, regardless of its companies’ prospects. Many investors have withdrawn their money from European funds and trusts in 2023. If they are willing to return, the discounted trusts appear to offer a bargain route not only into the eurozone, but also into the UK.

Our stock markets are also seen as being unfairly overshadowed by the dazzling glamor of American technology.

About 30 per cent of the European Opportunities portfolio is invested in the UK. Scanning the fact sheets (available online) I discovered that I had some exposure to Europe through funds and trusts such as Brunner and 3i Group, whose largest assets have a majority stake in Action, Europe’s leading convenience store chain.

I was hoping for short-term weakness in ASML, Novo Nordisk and SAP prices, but this did not materialize. The sound you hear is the sound of teeth grinding and getting ready to buy.

(Signs for translation) Daily Mail

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