Is Europe a buy?
George Kessarios
Chief Economist & Fund Manager
Analyst Insights, Friday, 24th of July, 2020
A very interesting chart from Bloomberg shows that Facebook has a higher market cap than the entire Italian market.
Is this realistic? The answer is yes. On the one hand, the market has decided it is, and on the other, Facebook’s appeal is not restricted to the US or any one country, but to the entire world. As such its market cap represents a company with truly global reach.
However, with valuations in the US more than stretched, the question is, is Europe a buy despite the fact that it has underperformed the US for many years.
Here are several things to consider when answering this question:
- The EURO is rising vs the dollar and should act as a tailwind for European equities
- As a general rule of thumb, buying cheap valuations has a lot of downside protection
- Europe as a whole has many advantages vs many economies that could change the sentiment
- Things always change, even if it takes time for us to notice them
The bottom line is don’t count Europe out, especially with the valuation differential vs the US. Things never stay the same and eventually, what goes around comes around.
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