London: Let’s be honest, unlike their US peers, European stock investors don’t have much to celebrate on the 10-year birthday of the global equity bull run.
Compared to the S&P 500, which is up 401 per cent, including reinvested dividends, since March 2009, in dollar terms the Stoxx 600 failed to return even half that. Messy politics from Italy to Greece to the UK and Germany, the seemingly never-ending debt crisis, as well as failure of profit growth to catch up with the US made sure major investors stayed away from European stocks.
“Every time it looks like things might turn for the better, there’s either a political issue or an economic hiccup,” said Brian Jacobsen, a senior investment strategist at Wells Fargo Asset Management, which oversees about $500 billion in assets. ”I think that has investors scared to commit capital to the region. It’s as though investors are adopting the philosophy of St. Augustine towards Europe where they want to invest there, but not quite yet.’
Europe is not inherently uncompetitive as shown by the global performance of some of its companies but there is just a defensive mindset, and now an equivalent view is firmly embedded in global investors looking at Europe.
Seriously, why should investors bother with a complicated and divided region, when buying the Nasdaq or the Dow made things so easy? There are, however, a few exceptions to European equity laggards, and they might take you by surprise.
Scandinavians did amazingly well, with the OMX Copenhagen 20 Index almost matching the S&P 500’s whopping rally with a 400 per cent US dollar total return. There, the brewer Royal Unibrew A/S surged about 7,000 per cent and medical equipment maker Ambu A/S jumped over 3,000 per cent in dollar terms over the past decade.
But before you run off to shop for the Danish stock index, keep in mind that Novo Nordisk A/S holds an almost 40 per cent weighting in it, virtually making it a bet on a single stock. Lucky for them, the world’s biggest maker of diabetes drugs has rallied about 460 per cent over the past 10 years. Norway’s OBX Index also didn’t disappoint with a 252 per cent total gain and the OMX Helsinki 25 Index rose about 375 per cent.
So, who were the really big losers? Southern Europe, which was hit especially hard during the debt crisis, topped all the charts in this regard. The worst performer among major European indexes was Portugal’s PSI 20 Index with a net gain of just 14 per cent. Telecom company Pharol SGPS SA is down almost 100 per cent over the past 10 years and Banco Comercial Portugues, SA has a loss of about 90 per cent.
Spanish stocks also relatively missed out on the decade of big moneymaking as the IBEX 35 Index managed to squeeze out an average 8 per cent total return every year over the period. Spain was struggling to recapitalise its banking system without external help and in 2012 had to be bailed out by the European Union. Reflecting the weakness in the country’s financial sector, Spain’s fourth-largest lender, Bankia SA, lost almost 100 per cent and was the worst performer in the entire Stoxx 600, while Banco de Sabadell SA fell 60 per cent.
“Europe is not inherently uncompetitive as shown by the global performance of some of its companies but there is just a defensive mindset, and now an equivalent view is firmly embedded in global investors looking at Europe,” said Chris Bailey, a European strategist at Raymond James in London. “The US recapitalisation of the banks was more aggressive whilst in Europe all the government-level debt challenges held this back. The euro-zone economy didn’t help itself by being late to apply stimulus.”