Paris (awp/afp) – The Old Continent is resisting: after several years in which the United States had become the focal point for investors, including Europeans, 2022 has reversed the situation and this trend continues into early 2023.
Last year, to limit losses on shares, it was better to focus on Europe than on the United States. European country indices limited losses, less than 10%, when the US benchmark market, the S&P 500, fell nearly 20%.
The performance gap continued into the first weeks of 2023, with gains of 4.7% for the S&P 500, while Paris and Frankfurt are currently hovering around 8%.
Economically, “the configuration turns the pessimists upside down,” explains Sophie Chauvellier, manager of Dorval AM.
Several pieces of news may have given European companies more impetus, starting with the rapid reopening of China, a much more important market for them than for American multinationals. In Paris, this is especially true of the luxury giants, heavyweights of the rating.
Furthermore, “we are emerging from the recession with energy that is no longer a problem, thanks to the savings on consumption that have been granted to us”, and with milder temperatures, which allow us to keep the gas supply high, continues Chauvellier.
Bank Richelieu also notes a “reversal of perception” favorable to Europe: economic indicators came out better than expected in the last quarter of 2022 in the eurozone, unlike the United States.
Other financial reasons support this trend. For institutional investors, the start of the year marks “the end of the safe haven allocation” of funds in the area perceived as the safest in an uncertain environment: the United States and its dollar, according to Christopher Dembik, director of Saxo Bank macroeconomic research.
“We are seeing a clear redistribution of capital,” which “will benefit the major European indices,” he notes.
The appreciation of the euro against the dollar, after the common European currency reached its lowest point in 20 years at the end of September, is helping to make investments in the eurozone more attractive. The recovery of the euro is supported by the anticipation of a more restrictive monetary policy by the European Central Bank than by the US Federal Reserve.
Despite the recent rally, European equities appear to managers to be even cheaper than US equities. To establish this observation, they compare companies’ profits with their stock valuations: the further the two figures are, the more expensive a company’s stock price is considered, which slows down buying.
“In the US we have certainly returned to valuations a little closer to historical averages, but remain above: the market may not have corrected enough,” interprets Raphael Thuin, head of capital market strategies at Tikehau Capital.
“It’s a little less true in Europe, valuations are below historical averages, even if we haven’t reached a low,” he compares.
Same observation to Oddo BHF AM, where it is believed that “Europe seems better equipped to face the rise in rates, in particular because the risk premiums for US equities” are “not very generous”, according to the asset manager.
But many of these differences are related to the nuance “the composition of the indices” Mikael Jacoby, head of Oddo’s continental brokerage. The American markets are very marked by the presence of technology companies, which are paying dearly on the stock exchange and whose flagships, such as Meta, Alphabet or Tesla, also screwed up in 2022.
“The difference between the two areas is very much in the behavior of the technology” and it is “difficult to predict” whether the trend will remain the same, he believes.