Goldman Thinks European Stocks Could Beat American Ones

Goldman Thinks European Stocks Could Beat American Ones

over 3 years ago2 mins

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According to investment bank Goldman Sachs, hot pockets of growth are developing in Europe – while its stock market overall is backed to best both American and Asian rivals 👊

What does this mean?

In a new research note published Thursday, Goldman’s analysts responded to investor skepticism regarding European stocks, commonly represented by the STOXX Europe 600 index – which includes listed companies from 17 countries, including the UK.

Foreign investors represent 40% of European share ownership, compared to just 15% in the US, and their fondness or fear of the continent correlates with its stock market’s performance. But while overseas backers have sold more than they’ve bought since 2018, Goldman thinks local “multi-asset” funds are poised to step in and push up the value of European stocks, with ultra-low bond yields an unappealing alternative.

Such funds have been Eurostocks’ best friends over the past decade
Such funds have been Eurostocks’ best friends over the past decade

The bank advocates overlooking the euro’s rising value versus the dollar, which it predicts will increase another 9% over the next year – making both European companies’ products and their shares more expensive for Americans. According to Goldman, that should be more than made up for by an improving global economy boosting profits, given that European firms send half their sales overseas 😅

Why should I care?

With agreement on the European Union’s landmark coronavirus recovery fund removing one major risk, Goldman predicts that the STOXX will provide investors with a 13% total return in dollar terms over the next 12 months. That’s more than it expects from markets in either the US or Asia (excluding Japan) across the same period.

Individual sectors and stocks may afford even greater opportunities, however. While Europe has fewer fast-expanding firms than the US or Asia – internet companies only make up 6% of the market, compared to 22% in Asia – the continent’s tech and healthcare sectors are among those exhibiting strong fundamental growth but relatively attractive prices 👀

The renewables ecosystem, meanwhile, may get a future boost from local leadership in the “green economy”. But whatever their business, those European firms taking advantage of low interest rates to spend significant amounts investing in future growth have performed particularly well recently – and they could well continue to do so in the future.

Goldman’s “High Growth Investment Ratio” basket (pictured below in April 2019) has done well
Goldman’s “High Growth Investment Ratio” basket (pictured below in April 2019) has done well
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