A Conversation with Jonathan Dickson
There’s been a notable uptick in fund flows into European equities. In your view, is this a short term rotation or are we seeing the early stages of a more sustained structural shift?
Yes, in our market alone there has been a 71.3% increase YoY flowing into European equities. Prior to this there is little doubt that European equities have been out of favor for some time and the likes of the Mag 7 has been an easy place for U.S. investors to park their money. Investors in the United States are now looking at the valuations of good companies in Europe compared to some of their U.S. peers and are seeing a valuation gap.
2. While shifts in U.S. policy are clearly influencing movement from North America to Europe, have there been specific developments within Europe - such as ECB policy decisions, improved currency stability, etc - that are contributing to this trend?
What you see in Europe is an entrenched rule of law which - outside the argument of whether this is good or bad - does tend to give international investors comfort with investment decisions, albeit in the knowledge they may not see the opportunistic moves in share price you have in the United States. That said, for the first time in many years the ECB are starting to address legacy policies which should make investing on the continent more attractive. How long this takes to be effective is yet to be seen. The short answer is investors are looking at companies case by case as opposed to the broader policy sentiment.
3. Do you believe the long standing valuation gap between U.S. and European equities has reached a potential inflection point?
With the continuing momentum into European equities there is a broader acknowledgment of a valuation gap (we also see this with greater PE involvement) and don’t see a reason for this to change. It is now on the issuers to position themselves accordingly to take advantage of this new world.
This content is intended to highlight current market conditions at the time of writing and should not be construed as investment advice or a recommendation to buy or sell any security.
