The ill-conceived and swiftly abandoned plan for a European league of football clubs sparked uproar this week.
There may not be quite the same level of antipathy towards European markets among UK investors, yet many are distrustful as a result of factors like Brexit friction and the EU’s poor handling of the vaccine rollout, with its consequences for tourism and other industries.
The possibility that French and German elections could bring populists to power is another concern. There are also questions about the Wirecard scandal, an affair that has exposed the deficiencies of Germany’s financial watchdogs.
Fly the flag: Attention is turning to Europe’s stock markets which look attractively priced
But could this perception of Europe as a no-go zone be the investment equivalent of an own goal? The moment of peak pessimism over prospects for Germany and others seems past, as economic data and vaccination rates improve.
Attention is turning to Europe’s stock markets which look attractively priced. The MSCI Europe (excluding UK) is heading upwards; French and German stocks make up about 42 per cent of the index; Swiss stocks account for another 19 per cent.
Francesco Conte, manager of the JP Morgan European Smaller Companies trust says: ‘Gloom about the prospects for Europe tends to be overdone, although sometimes it’s justified because of strange political decisions.
‘But Europe does well when there is a global synchronised recovery, which is what is expected for the second half of this year. Germany, with its strength as an exporter, will take other countries with it through its supply chains.’
It was feared that the EU’s stance on vaccines could cause pharmaceutical groups to take drastic action. Lazard Asset Management said: ‘If protectionism morphs into policy, it could impact where pharmaceutical companies choose to locate their international intellectual property.’
These concerns will linger. But there is now a focus on Europe’s listed firms that make money around the world and can exploit pent-up demand in locations where lockdowns are easing.
They include Eventim, the German ticketing business, which should prosper when concerts and other events resume, along with global giants such as Inditex – the owner of Zara – and LVMH, the luxury goods conglomerate which owns Tiffany and Co.
The latter group’s dominance makes it the European equivalent of America’s tech titans, in the opinion of some analysts. In 2020, it became almost a dogma that the US tech companies would be the sole beneficiaries of the move online. But in 2021, it is clear that European businesses such as Sinch, have not been left behind.
Global appeal: There is now a focus on Europe’s listed firms that make money around the world, like Tiffany and Co
Software from this Swedish company enables businesses to connect with customers via text messages at each stage of an online delivery, for example. Its shares have trebled over the past year, fortunately for investors in JP Morgan European Smaller Companies, which has a holding.
Duncan Goodwin of Premier Miton Global Sustainable Growth fund, where European stocks form 20pc of the portfolio, contends that such disrupters are integral to the appeal: ‘When world GDP grows, Europe grows with it. There is a breadth and depth of companies, with a nice mix of established global leaders in engineering, healthcare, insurance, oil and gas and pharmaceuticals and game-changers in sectors like renewables.’
The scale of giant European enterprises from EU states and Switzerland is demonstrated by the ten biggest MSCI members: Nestle (foods); ASML (semiconductors); Roche, Novo Nordisk, Novartis and Sanofi (pharma); SAP (software); Siemens (technology); Total (oil) and LVMH.
A spread of these would give a European dimension to investors whose portfolios are overweight in US shares. You could track these and others via the Shares MSCI Europe ex-UK ETF. Interactive Investor’s low-cost option is the Vanguard FTSE ex-UK ETF.
If you are daring, Interactive Investor recommends TM Crux European Special Situations. Its largest holding is Prosus, a Dutch fund that invests in disrupters.
Excitement is mounting over opportunities for such funds on news that James Anderson, comanager of Baillie Gifford’s Scottish Mortgage Trust is stepping down to become chairman of Kinnevik. This fund was an early shareholder in Zalando, the online retailer with 35m customers.
If you are drawn to Prosus and Kinnevik, you could back Baillie Gifford’s European Growth trust.
Janus Henderson European Focus owns ASML, LVMH and Nestle, and ‘reopening play’ stocks that should prosper from a resumption of sociability – Inditex and Norway’s Mowi, the largest producer of Atlantic salmon.
The row with the EU over fishing rights may be another argument against Europe, but the desire to dine out and have a good time could be a reason to say yes.
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