In this research note, Kepler explores the performance and investment landscape of European equities, emphasizing the importance of focusing on individual companies rather than macroeconomic conditions. The report highlights several leading companies, such as Novo Nordisk and ASML, and discusses how European equity markets, including those covered by Fidelity European Trust plc (LON:FEV) and JPMorgan European Discovery plc (LON:JEDT), benefit from global revenues and trends. The note also examines fund flows and geographical weightings, suggesting that despite a challenging macroeconomic outlook, European equities offer compelling opportunities driven by world-class companies in various sectors.
What this piece isn’t trying to do is cast any economic forecasts for European countries, and in truth, it’s not hard to find plenty of negatives to talk about if one wants to. At the heart of things, we are just intrigued by the fact that last year European stock markets performed well, driven by good operational performance by many of its largest companies, rather than by a valuation recovery from the lows reached in 2022, but at the same time investors continued to shun the region. And as it turns out the Europe that fund managers invest into has a brighter economic track record than the Europe we think of when we just look at the sizes of the economies that make up the whole. We’ve been asked a fair bit this year whether very strong fund flows into US equities are a signal that it’s time to jump ship, and our view is that when one is dealing with explosively growing companies, it can become complicated to answer such a question. What seems less complicated to us is that Europe has shown it has some great, world-leading companies in which investors have shown limited interest by comparison to the Magnificent Seven, and yet the economic reality for many countries is much more positive than the common narrative. This seems to us to be a convergence of things that could lead to very strong performance once investors fully grasp the situation.
