Why Investing in Europe is a Smarter Move Than in the US (UBS). Top 3 Reasons
Why European Stocks are Gaining Interest
According to Swiss bank UBS, European stocks are currently more appealing than their US counterparts for at least three key reasons.
Despite Europe’s previous underperformance compared to the resilience and strength of the United States, it is now sparking positive interest among investors.
Economic Momentum
While the US economy has significantly outperformed recently, with a GDP of 1.6% in the first quarter of 2024 compared to the Eurozone’s mere 0.3% growth, UBS predicts this gap between the two regions could soon narrow.
Key indicators such as Purchasing Managers’ Index (PMI) data indicate a potential upswing for the European GDP and a downside risk for the US GDP.
Moreover, Europe’s excess savings are higher and less utilized than in the US, with more flexible bank lending conditions for businesses in Europe, potentially fostering growth.
UBS also notes that the monetary policy is crucial to monitor, as some European central banks have already started easing measures.
Stock Valuations
UBS highlights that European stock valuations have become more attractive in recent months.
The European Equity Risk Premium (ERP), which measures the excess return on stock investment compared to risk-free alternatives, is much higher in Europe than in the US.
Additionally, European Price/Earnings (P/E) ratios are lower than in the US, signaling an appealing investment environment.
Corporate Earnings
UBS points out that the momentum of corporate earnings is shifting in Europe’s favor, driven by a weaker euro and stronger PMIs that are expected to boost earnings revisions.
European profit margins (excluding financials) are narrower than in the US, with a lower percentage of margin improvement derived from unsustainable factors in Europe compared to the US.
Furthermore, while Europe lacks technological stocks – a key factor in its underperformance – UBS highlights that around 40% of the European market capitalization consists of leading or unique companies, offering no direct competition from US-based firms.
In conclusion, European stocks are gaining traction due to favorable economic factors, attractive valuations, and improving corporate earnings.
However, readers are advised to make investment decisions carefully, considering their risk tolerance and time horizon, as the information provided is for informational purposes only and not a solicitation for investment.
