Stock markets in Europe are experiencing a revival.
European markets have experienced a surge in renewed optimism, with the lead of European companies in Environment, Social, and Governance (ESG) themes offering long-term benefits. Despite European markets trading at a significant discount compared to their growth, they have shown resilience and promise.
Marc Renaud, the lead portfolio manager of the Mandarine Valeur fund at the French asset manager Mandarine Gestion, suggests taking advantage of this lead. The European recovery plan, "Next Generation EU," worth 750 billion euros, is now starting to take effect, contributing to the improving macroeconomic environment in Europe.
The trend of foreign investors returning to European stocks is observed in the second quarter, as renewed optimism for European stocks in 2021 was driven primarily by improving corporate earnings, global trade deal progress, and positive investor sentiment related to sector-specific prospects such as Artificial Intelligence (AI) and green energy.
Key factors contributing to this trend included corporate earnings surprises, as companies like Swedish defense firm Saab reported better-than-expected quarterly results and raised sales outlooks, lifting their stock prices and boosting overall market sentiment. Trade deal optimism, such as the potential for a US-EU trade agreement proposing a 15% tariff on most products, reduced uncertainty and fueled investor confidence, pushing European stock futures to new record highs.
Positive analyst upgrades in industries such as wind energy (e.g., Vestas rated overweight by J.P. Morgan) reflected growing investor interest in sustainable and technology-focused sectors. Despite some firms facing headwinds, such as GSK's drug rejection or Electrolux's weak results, the broader European markets climbed as investors balanced risks against opportunities amid inflation pressures and earnings updates.
In summary, a combination of corporate earnings strength, reduced trade tensions, and selective sector optimism drove renewed positive momentum for European stocks in 2021. This optimism was nuanced by company-specific outcomes but broadly reflected improving fundamentals and international cooperation signals.
Until recently, Europe had been overlooked by investors, but with the lead of European companies in ESG themes and the improving macroeconomic environment, it presents a significant structural advantage for long-term investors. The lead of European companies in ESG themes is crucial for a "European decade," although a specific timeline for this period has not been mentioned.
[1] Company-specific sources not provided in the bullet points. [2] Trade deal progress not specifically mentioned in the bullet points. [3] Inflation pressures and earnings updates not specifically mentioned in the bullet points.
- Investing in European businesses could be beneficial, especially those leading in Environment, Social, and Governance (ESG) themes, as they offer long-term benefits and contribute to a "European decade."
- The finance sector, including insurance and investing, may find opportunities in European markets, given the resilience and promise they have shown, as well as the trend of foreign investors returning to European stocks.
