Europe is witnessing a resurgence of optimism among investors, driven by a combination of capital inflows and favorable economic conditions. Anthony Gutman, Co-CEO of Goldman Sachs International, argues that the continent is increasing its attractiveness. As U.S. exceptionalism begins to wane, he views this new paradigm. And investors are making a move. To do that, in early 2024, they moved about $20 billion of capital from U.S. equity exchange-traded funds (ETFs) to European ones.
Where in January the U.S. sentiment seemed almost euphoric, Europe seemed a little more dour. The announcement of the last few weeks has catalyzed a dramatic shift in how people look at that potential. Investors withdrew $3.2 billion from U.S. equity ETFs. Additionally, they directed 14.6 billion euros to European ETFs, further proving their significant confidence in the European market’s potential.
“No one should forget the powerful benefits that exist today in Europe,” said Kurt Björklund, Executive Chairman of Permira. He noted that capital has gotten cheaper due to positive trends in euro and dollar rates. This broader trend allows for the CSS acquisition of high-quality companies at more attractive valuations.
“If you look at Europe at the moment, firstly, capital is cheaper… Secondly, valuations are cheaper, you can buy great companies for less,” – Kurt Björklund
Björklund underscored the rapid acceleration of the innovation cycle in Europe. He noted that the playing field has given birth to a lot of creative companies who are now out competing on the world stage.
At the same event, Carlyle Group’s Managing Director Mark Jenkins agreed about the challenges of Europe’s investment landscape. He pointed to the opportunity for higher returns per unit of risk by investing in the U.S.
“In Europe, we’ve seen a lot of great opportunity and think we can pick up greater returns here relative to the risk you’re taking in the U.S.” – Mark Jenkins
The enthusiasm for Europe is not just limited to retail investors and private equity companies. In the words of Andrea Orcel, CEO of Unicredit, the revival of Europe is not only desirable, but entirely in Europe’s hands. He imagines big public works and military spending, which he thinks will get everyone dancing in the streets.
“There will be a lot of spend on infrastructure, on defense… That’s exciting for the market, therefore money flowing in,” – Andrea Orcel
French President Emmanuel Macron had a vision for Europe. He remains optimistic that smart solutions will come together to promote growth and stability throughout the continent.
“I’m sure that we will find, at the end of the day, a good solution.” – Emmanuel Macron
As European leaders and executives project confidence in their ability to navigate current challenges, they are keenly aware of the need for sustained progress. Orcel warned that if commitments to reforms fail to deliver, investor confidence could evaporate just as rapidly.
“But if… investors realize that this is lip service, but it doesn’t really happen… Money will flow back in a nanosecond,” – Andrea Orcel
For Europe’s capital markets to prosper, they need to promote economic convergence. Fostering solidarity between member states will be key to fulfilling this aim. Orcel imagines a “beautiful future” where there is a EU banking union and a capital markets union. These amendments will create a more seamless economic development pipeline.
The rebound has also pushed up the pan-European Stoxx 600 index more than 8% since November 1, 2023 on increasing animal spirits. In comparison, the S&P 500 is up just 5% in that same time frame. This strong performance has led to a rising tide of investor interest that is looking for opportunities beyond traditional U.S. markets.