Investing

Investors must look to Europe for returns – BlackRock

Faced with the excitement of US returns, investors forget that Europe presents several good investment opportunities that are often broader and cheaper than those seen in the US.

This is the view of BlackRock CIO for Fundamental Equities EMEA Helen Jewell, who recently spoke on the MoneywebNow podcast.

Despite inflation and other concerns, Jewell said Europe has had a good start to 2023 for European equities. 

There are currently significant recessionary concerns in Europe, as some countries like Germany have tipped into a recession this year. However, the market has already priced in these concerns.

“Particularly in the UK, those recessionary concerns are absolutely priced in. If you look at UK price earnings multiples, they’re currently at a ballpark of about ten times the price-to-earnings ratio,” she said. 

“That is incredibly low for a developed market price-earnings multiple, suggesting that those recessionary concerns are already priced in.” 

Jewell did not discount the possibility of a recession, saying, “You can’t have the interest rate hikes that we see without concerns of tipping into recession.” 

However, she does not see this as a reason to avoid the European equity market, as a recession “doesn’t stop there being value in that market for the UK and even more broadly in Europe”.

Jewell highlighted several European sectors that could present good investment opportunities in the continent’s current environment.

Europe’s industrial sector has some very good companies trading at reasonable multiples. These companies are set to benefit from the continent’s increased focus on achieving net zero and the push of new technologies that will follow.

Artificial Intelligence is another important consideration for many European companies. Jewell said there are technology companies in Europe trading on very sensible multiples and leveraging AI similarly to the US’ “magnificent seven” companies.

Another sector Jewell highlighted is healthcare, which is well-placed for defensive and inflation-proof. 

However, the most exciting thing about the healthcare sector is that there are myriad different sectors and sub-sectors within it, she said. 

“You’ve got those pharma names which give you the resilience. We’ve also got the biotech companies, which have had a pullback because of those interest-rate hikes.” 

“And then you’ve got some of those med-tech companies which are still seeing post-Covid recuperations from delays in things like knee-replacement operations. So some really exciting opportunities across the breadth of the market.”

The banking sector experienced a significant pullback in 2023 as concerns over grew following notable bank failures in the US and Europe. 

“But the European banking sector has had regulations for a while, and as interest rate hikes go through the system, the banks also start to benefit. So some interesting opportunities in the European bank space.”

Jewell said the most exciting part of investing in European markets is not just the opportunities but the breadth of those opportunities.

“What’s interesting is we’re not seeing the flows into European markets that you might expect given the returns, given that earnings resilience, and given the opportunities we see in the space, which, to my mind, makes the opportunity really more exciting if you think about it as an opportunity now.”

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