Time to Buy European Stocks Instead of US Ones?

Let's Buy European Stocks? French Share (Company "Chaussures Dressoir")
  • Buy cheaper European stocks rather than overpriced American titles?
  • The Stoxx 600 index almost stagnated in the last ten years.
  • There is always some crisis giving reason not to buy European shares.
  • But there are huge differences between the different countries and sectors.
  • You can include this continent in your portfolio.

Stock Chart


Why Do Some People Want to Buy European Stocks?

Some analysts say we should buy European stocks now rather than overpriced American ones. Because European indices are underperforming for many years already. European stocks are undervalued, or, at least, less overvalued.

The broader Stoxx 600 index surged 38 percent in ten years. (On the first chart, the EXSA ETF, based on the same index.) That is only 3.3 percent per annum, much less than the return of many other markets. The US S&P 500 almost tripled in the same period. (+11.2% p. a.) The Japanese Nikkei 225 showed reached double-digit growth, too, 10.2 percent p. a. (Or, +163.7 percent in total).

There are huge differences between European countries. The leading stock index in Paris, France, the CAC-40, surged near the European average. Germany performed much better, Britons, Italians, Spaniards, lower, or much lower.

Chart 1: Buy European Stocks? US, Japanese, and European Stock Indices, 10 Years.
Chart 1: Buy European Stocks? US, Japanese, and European Stock Indices, 10 Years. (Red: Euro Stoxx 600 ETF. Blue: S&P 500, USA. Orange: Nikkei 225, Japan. Black: DAX, Germany. Green: CAC 40, France. Purple: UK. Light Blue: Italy, Light Green: Spain.) (Tradingview.com)

There Is Always a Reason Not to Buy European Shares

There are many explanations for why Europe is underperforming. I made a small, incomplete list:

  1. The economic growth on the continent was lower in the last decade than in the USA.
  2. Dangerous mountains of debt weight in some countries, like Italy, Greece.
  3. Immigration tensions, terrorism risks persist (Islamist, far-right, far-left).
  4. The long, chaotic, and harmful Brexit process.
  5. Weak banking and financial sectors.
  6. Energy majors in trouble for low oil prices.
  7. Bureaucracy, slow decision-making mechanism, highly decentralized political power.
  8. The central banks (in the first line, the ECB) have no more gunpowder to fire. The interest rate, for example, was already in the negative territory before the pandemics.
  9. The coronavirus hit the continent hard.
  10. The continent is strongly exposed to tourism, which collapsed totally.
  11. And now, disputes about the coronavirus aid package (Poland and Hungary vetoing it for political reasons).

Crisis After Crisis in the European Union

There are a lot of problems and risks in Old Europe. Some sectors like banking never really recovered after the 2008-2009 crisis either. In the energy sector, the closure of coal and atomic plants in Germany, disputes about pipelines to Russia cause trouble. Crisis after crisis. Irish bailout, Spanish rescue package, Greek crisis, Cyprus on the brink. Refugee storm, the Ukrainian crisis, and sanctions against Russia, etc.

Something is always happening, with negative consequences or outlook for the economy. These events can scare investors and discourage them from buying European stocks.

Chart 2: iShares European Sector ETFs, 1-Year Returns
Chart 2: iShares European Sector ETFs, 1-Year Returns (Source: iShares.com)

There Is No Such Thing As European Stocks

In a world where most of the larger companies operate internationally, national indices have less sense. Let’s talk about sectors, instead.

The global coronavirus pandemics hit some sectors hard, but others are performing well. The same in Europe. Like the main American stock sectors, but with differences. In the US, technology, especially “Big Tech” giants, is dominating the general S&P 500 index, too. The tech-sector over-performed this year, jumping far more than all other industries. (I wrote about it: S&P 500 Sector Performance in 2020–The 11 Riders of the Cataclysm).

In one year, until October 31, the European Stoxx 600 index ETF (EXSA) fell 11.8 percent. Even the tech-sector on the continent performed moderate, with +2.8 percent in 12 months. Retail was some better, with 3.7 percent growth. With most sectors in the negative, Oil & Gas and Banks underperformed with very high losses.

Buy European? But Which One?

It is very tough to decide when and how to buy European stocks. There is a difference of 45 percentage points between the best and worst sectors in only one year. The uncertain outlook of different industries, the unknown length, and depth of the lockdowns make it difficult to choose. Some investors prefer growth, others, value stocks. Some buy technology, others, traditional branches. Serious lockdowns started in Europe in November–but more are expected in the US, too.

Chart 3: iShares European Sector ETFs, 5-Year Returns
Chart 3: iShares European Sector ETFs, 5-Year Returns (Source: iShares.com)

If you look at the fundamental data, by some traditional measures, the European stock market seems to be also cheap. The CAPE ratio (the Cyclically Adjusted Shiller-PE) is by 30 in the USA and only approximately half of that in Europe. (In Germany, 15.5, France, 17.1, UK, 11.8, Spain, 10.5.) OK, there are much cheaper regions, like Turkey, Egypt, Russia or Colombia. (With CAPE by ten or lower.) But Europe seems to be much stronger than these countries of the “Third World.” (CAPE data by StarCapital and Siblis Research.)

Conclusion? To Buy or Not to Buy European Stocks?

Banking sector vs. FinTech. Oil companies vs. renewable energy? Traditional retail vs. online shopping? Europe, the US, Asia, or something else? So many questions. I don’t want to discuss either the growth versus value question or the future of technology stocks. Not even if there are bubbles on the stock market. Equities seem inevitable in the long run because of negative real interest rates. (TINA=There Is No Alternative.) But if you want a balanced, diversified international portfolio, you better buy some European shares, too.

Note About European ETF-Dividends

The mentioned ETF-s are “distributing”, paying dividends. So, the real returns of the investors are better than on the charts. For example, the iShares STOXX Europe 600 UCITS ETF (EXSA) paid 0.79 EUR in the last 12 months, approximately 2 percent of the actual price. (Dividend data: JustETF.com)




I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research or consult your advisors before making any investment or financial or legal decisions.

I’m long in gold miner stocks and silver, platinum, large energy holdongs, and cryptocurrencies. Short in the S&P 500, Brent crude, natural gas and the German DAX at the time of writing.

(Photos: Pixabay.com.)


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