UBS Points to $600 Billion Treasure Chest Amid Despised Stocks
UBS Group AG is making the case for equities in the region almost everyone loves to hate.
The European stock market, the world’s most popular short, is falsely dismissed as a value and cyclical trade, according to strategists at UBS. The secret to finding gems there is to screen for businesses with a meaningful market share, they said.
“The dismissal of Europe as being merely value and cyclical is too simplistic,” wrote UBS, including analyst James Arnold and strategist Nick Nelson, in a note to clients. “The opportunities within the market are abundant.”
By filtering a list of European businesses with a market share advantage, UBS ended up with 34 companies with a combined capitalization of about 530 billion euros ($599 billion) with faster growth, higher returns, lower leverage -- and valuations -- than the staples group. They include the world’s biggest manufacturer of truck and train-braking system Knorr-Bremse AG and Novo Nordisk A/S, the world’s largest maker of insulin.
European equity funds have seen an almost non-stop investor exodus since March 2018 and have lost $66 billion since the start of the year as messy politics and a bleak growth outlook deterred traders. In U.S. dollar terms, the Stoxx Europe 600 is up 11% this year compared with 15% for the S&P 500.
And although UBS strategists reiterate that they aren’t arguing that Europe has more attractive characteristics than the U.S., the major investor void in European stocks may create an opportunity for future inflows.
“The direction of marginal investment flows seems likely to be towards Europe
rather than the U.S. given the flow of funds,” said the analysts.
©2019 Bloomberg L.P.