Executive director and global market strategist Vincent Juvyns admits that saying “Europe is back” could be seen as “a bold statement,” but it’s one he’s sticking by. Despite challenging short-term prospects in Europe including the slow vaccination campaign rollout, “when we look at financial markets since the beginning of the year, Europe is already back.”

He adds that the EU’s monetary and fiscal policy mix “should remain accommodative” and, despite predicitions on China driving global growth, “Europe’s cyclical economy and market will benefit more from global”, not only because China and the US are the two biggest trading partners for the bloc, but “with two-thirds of revenue generated overseas, what happens in China and the US is important for European stock, generally speaking.”

European equity markets are well-positioned to benefit from the reflation theme, while corporates should benefit from investors’ growing appetite for ESG.  

“Painful as value and income investors”

Even if things are looking up in 2021, the extremities seen in 2020 hit hard. 

“It was painful for us as value and income investors,” says Rajesh Tanna, head of the international equity group. “The first quarter of last year was the worst quarter for value and income in history, going back to the Great Depression...the cumulative drawdown to value has been the worst cumulative drawdown to value in history, going beyond even the Great Depression.”

Despite those extremities, Tanna sees catalysts need to fall into place--less uncertainty around Brexit, a new US administration and vaccination news--have all “helped reduce uncertainty and give visibility to the value trade,” which he anticipates continuing into this year. 

Since Pfizer news, for example, the MSCI Europe growth index rose 8% over five months, and the MSCI Europe value index up 25%. 

Tanna argues a diversified Europe is well-positioned for recovery--it also has most diversified revenue exposure versus any other region globally--and he provided some interesting options for investment. 

Take LVMH, for example, which includes Louis Vuitton and Moet Hennessy, but also Dior, Fendit and Tiffany: prior to the covid-19 crisis, the world’s largest luxury and cosmetics conglomerate boasted 13 consecutive quarters of double-digit organic growth, and its long-term trends should remain “structurally positive”, with 10-year total return at 18% CAGR and profit growth over same timeframe at 15%. 

Europe green, digital opportunities

In a LinkedIn survey of 498 participants, JP Morgan Asset Management asked which equity approaches would be considered over the next six months. 

For 38% of respondents, sustainable investing was top, followed by income and value (30%), technology (19%) and smaller companies (14%). 

“The momentum behind ESG is only increasing,” Juvyns says. “We all know Europe better positioned than any market for ESG... we are better prepared to face stricter regulation in this field going forward.”

Green and digital are key transitions for Europe. And while green might be evident, investors would be better served not underestimating European tech companies. 

Even if “the US dominates market cap in technology,” explains investment specialist Thomas Bradley-Flannagan, investment specialist, “the regional split of tech is far more even when you look at absolute companies per region than just market cap.” 

He compared several examples of tech companies in the US and similar ones in Europe, with many of the latter trading on discounts, with location undoubtedly playing a role. 

The team estimates Europe tech will also benefit from EU’s fiscal stimulus and notes how tech usage changed globally, as even smaller companies were forced to ramp up their own tech and digital assets. “Amazon lost market share in 2020...even if sales were up, its slice of e-commerce pie was down,” adds Bradley-Flannagan.