January 27, 2025
Eureka for Europe?
Market update
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Mae van Dalen
Europe and the US
Since 2007, Europe has been economically underperforming compared to the United States. Lower productivity growth, reduced investments, over-regulation, and a fragmented market are significant contributors to this trend. However, the perception that Europe is economically the weaker sibling of the US could be incomplete.
The current state of the European market
In 2024, the European stock market performed relatively poorly, whilst the American market, driven by technology companies, significantly outperformed. This has led to a situation where European stocks are currently valued much lower than their American counterparts. This underperformance is not a new phenomenon: over the past 17 years, European stocks have underperformed their American counterparts by a staggering 284%, resulting in the current record-low valuations.
Potential appeal of low valuations
The current low valuations of European stocks could indicate a potentially interesting entry point. Below are some factors that could contribute to an improvement in the European market:
A potentially less strict focus on austerity compared to the US
Possibly more room for the European Central Bank to ease monetary policy through interest rate reductions
A potential increase in global capital expenditure could stimulate European exports
Gradual improvement in the energy situation could strengthen the competitive position of energy-intensive industries
A possible resolution to the conflict in Ukraine could improve sentiment towards European assets
An opportunity for value investors
For value investors, the combination of low valuations and potential structural improvements could present an opportunity. The low valuations may provide a buffer against economic headwinds.
Read more about Mpartners' investment philosophy here.
Importantly, investors should always conduct their own research and carefully weigh their investment decisions against their personal financial objectives and risk tolerance.