Donald Trump dismayed the world by winning the U.S. presidential elections last November, and his victory sent an already bullish stock market into hyperdrive. Betting on the prospects of pro-business policies, U.S. investors have since poured more than $195 billion into stock-buying funds. Now the bullish sentiment is moving in the direction of Europe, with politics also seen as playing a part in this shift.
European stock funds have just posted their biggest inflows since late 2015. A key driver of this surge is the expectation that French presidential candidate Emmanuel Macron will win the race against hardline Eurosceptic Marine Le Pen. However, investors have also begun comparing U.S. and European companies, coming to realize that the latter are cheaper. Besides, the U.S. bull market has had several years of spectacular gains, and an upset may be on the cards. In Europe, on the other hand, the rebound is its early days.
But even if U.S. stocks continue their upward march, there’s more to gain in Europe, according to Goldman Sachs strategist Peter Oppenheimer. As he told the FT, the United States has been the primary investment destination since the financial meltdown because the rest of the world had little to offer in terms of growth and low risk. But that is no longer the case.
"For the first time in six years, global growth and profit expectations have been revised upwards," Oppenheimer said, adding there have been stronger profit revisions outside the U.S.
With the U.S. dollar losing some of its strength this year, a number of European indices have overtaken the S&P 500 in dollar terms. And the Nasdaq Composite index may have gained more than 12 percent, but the Euro Stoxx 50 index has climbed at a similar pace.
However, SociétéGénérale quantitative strategist Andrew Lapthorne thinks that investors are not attracted to Europe because of cheap valuations. It's more a case of the continent being perceived as a "leastworst" option. "A lot of the attractiveness for Europe is the valuation of the US looks pretty punchy," Lapthorne told the Financial Times.
Photo: © photo.ua / Shutterstock