LOS ANGELES — Much of Europe remains off limits to American tourists because of the pandemic, but the region is looking like an attractive destination for stock investors.
While eurozone stocks remain in a slump relative to the U.S. stock market’s record-shattering rebound, they could be poised for solid gains as the global economy continues to reopen, analysts say.
Energy, materials and industrial companies tend to do better when the economy is emerging from a downturn, and are likely to see improved earnings as businesses reopen. And Europe has a bigger share of stocks in these categories than Wall Street.
These types of companies, known as cyclical stocks, also tend to benefit when inflation rises, something that analysts expect will happen as the global economy strengthens.
“When we move from surviving the pandemic to thriving in the rebound, European stocks ought to do better,” said David Kelly, chief global strategist, J.P. Morgan Asset Management.
Betting on stocks that rely on a growing economy may sound unwise in the middle of a recession and pandemic with no clear end in sight. That’s why investors this year have doubled down on tech companies that provide everything from streaming video, internet access, smartphones and other electronic devices that people stuck at home due to the coronavirus have come to rely upon.
But the reopening of businesses in Europe, massive government spending and the phasing out of restrictions on public life have stoked expectations that the region’s economy will recover more rapidly than the U.S.
“The region sports a robust health infrastructure, exposure to a pickup in global growth and galvanized policy response with room for more stimulus,” BlackRock investment strategists wrote in a research note last month. “As a result, we see it offering better risk-reward than traditional beneficiaries of a growth pickup: emerging markets.”
In a follow-up note this week, BlackRock said it still expects cyclical European stocks to make gains, even as some countries have renewed lockdowns to contain a resurgence in the virus.
Eurozone stocks don’t look so attractive when compared to how U.S. equities are doing this year. The S&P 500 index is up 7.4%, while the Stoxx Europe 600 index, excluding companies in the United Kingdom, is down 5.6%.
Still, that’s not stopping investors from taking the plunge. Two of the biggest Europe-focused exchange-traded funds, or ETFs, have seen inflows surge this summer, partly reversing a big outflow in March, April and May.
The Vanguard FTSE Europe ETF, which has $12.51 billion in assets under management, has seen about $529 million in inflows so far this month, making it the fund’s best month this year. The MSCI Eurozone ETF, which excludes companies in the U.K. and other European countries that don’t use the euro, had its first inflows this year in June, taking in $486 million, and inflows have continued rising since.
Results from a new Bank of America survey echo the growing interest in European equities. The survey, which was conducted earlier this month and involved 181 fund managers with nearly half a trillion dollars in assets under management, found that respondents’ allocation of Eurozone stocks is now at its highest level since May 2018.
While the fund managers’ stock portfolios remain skewed most heavily toward technology, health care and consumer discretionary stocks, they said they have begun to shift into European stocks and other assets that tend to do better at times of higher inflation, something more than half of the respondents expect to see in the next 12 months.
When inflation appears, it typically shows up in commodity prices, which can help drive earnings growth for industrial, materials and energy companies.
“If we get commodity inflation, then European stocks are going to really outperform,” said Manish Kabra, head of European Equity Quant Strategy for Bank of America Securities.
Even without a big bump in inflation some of the Eurozone companies in the industrial, energy and materials sectors are posting strong equity price gains. German industrial goods and services company Sartorius AG is up 82.4%. this year, while shares in Danish wind energy company Vestas Wind Systems have increased 40.2%. Polish mining company KGHM Polska Miedz SA is up 42% this year.
Of course, no trade is without risk. European stocks’ appeal would unravel should the pandemic worsen, leading to broad business closures and crippling the economic recovery, for example.
“Something could go wrong with the coronavirus response in Europe, or it’s possible no vaccine works,” Kelly said. “If that happens, and Europe and the United States continue to wallow in this crisis, then some of the cyclical argument goes away.”
Alex Veiga, The Associated Press
GUEST OPINION: Trails can stimulate the economy in Atlantic Canada – SaltWire Network
There are many things that this pandemic will have taught us, however for many it has reinforced the value of trails and greenspaces.
As a trail professional of nearly 20 years I’ve always valued trails and greenspaces, however in this fast-paced world with ever-changing technologies, many people began to take the great outdoors for granted.
With limited activities to do during the pandemic and many people stuck in the house most of the day, the opportunity to get outside and breathe some fresh air is now becoming something that is vital for their well-being.
These days I’m inundated by Facebook posts, tweets or Instagram posts of people relishing in the outdoors and thankful to have access to trails and greenspaces. As we begin to become accustomed to a new normal, it’s time for us as a society to start thinking about getting back to some of the more simple things in life and how these things can act as both a social and economic catalyst for communities. Many of these things don’t need to be complicated, but can have a tremendous impact as we begin to come back from the ramifications of COVID-19.
One of these opportunities is to foster the development of a trail economy. Many countries have capitalized on the trail economy; however Canada and Atlantic Canada have not come close to realizing the potential it has in developing a strong economy based on greenway trails. The trail economy is the idea of generating both indirect and direct revenue through the development and promotion of trails as a product.
This however is not a “build it and they will come” scenario; it requires significant engagement between trail managers working hand in hand with outfitters, business owners and community leaders to ensure that there is a strong integration between all stakeholders. What it doesn’t require, however, is significant investment of funds to get these relationships developed.
Prince Edward Island is perfectly positioned to take advantage of the trail economy and is in a unique position as an established tourist destination. The Island is well known for their hospitality and many people consider P.E.I. as a premier vacation destination.
The Confederation Trail provides tourists and residents alike with a 450-km trail that spans the province and provides access to many of the most scenic coastal regions on the Island. A feature that the Confederation Trail has over many of its counterparts is the relative short distance between communities thus allowing trail tourists with good access to food and beverage, accommodation and other critical amenities to ensure that they have a memorable experience.
It’s now time for these communities and the provincial government to take advantage of this feature and ensure that they are properly equipped to take on the task of welcoming these tourists to their beautiful towns and villages. The development of programs such as Trail Towns, where the business community and other key stakeholders work together to assess their attributes and work together to fill in their service gaps in the next key step of the development of the Confederation Trail as a tourism product.
Trails and greenspaces connect us to the land, the people and histories of our communities. With many people staying close to home this year and perhaps in the years to come, let’s take this time to get better connected, learn more about the region, create a stronger and healthier population and a more vibrant economic outlook for Atlantic Canada.
Jane Murphy-McCulloch is a principal at Terminus Consulting and was national director of Trail with the Trans Canada Trail, developing 10,000km of land and water trail along with road cycling infrastructure to ensure the successful connection to the national trail system in 2017.
Fed's Powell says US economy faces long, uncertain recovery – BNN
Federal Reserve Chair Jerome Powell said the U.S. economy has a long way to go before fully recovering from the coronavirus pandemic and will need further support.
“The path forward will depend on keeping the virus under control, and on policy actions taken at all levels of government,” he told the House Financial Services Committee on Tuesday. While a recovery is underway, “both employment and overall economic activity, however, remain well below their pre-pandemic levels, and the path ahead continues to be highly uncertain.”
Read More: Powell and Mnuchin Set to Get Grilled on Need for More Stimulus
In his own remarks, U.S. Treasury Secretary Steven Mnuchin said he and the White House continue to seek an agreement with both parties in Congress on another fiscal relief package.
“The President and I remain committed to providing support for American workers and businesses,” he said in testimony released Tuesday. “I believe a targeted package is still needed, and the administration is ready to reach a bipartisan agreement.”
Powell and Mnuchin’s appearance is a quarterly exercise mandated by the Cares Act passed by Congress in March, which appropriated about US$2 trillion to help speed the U.S. recovery. The pair are likely to face questions about their use of Cares Act funds and about what else should still be done.
Prospects for another round of fiscal support have further dimmed amid spiraling partisan tension over the battle to replace Supreme Court Justice Ruth Bader Ginsburg, with just 42 days remaining before the U.S. election.
Powell was prepared for questions about the Fed’s troubled Main Street Lending Program, a US$600 billion facility aimed at providing credit to small- and mid-sized companies. He said Fed officials had responded to feedback by making adjustments to the program.
Still, he added, “Main Street loans may not be the right solution for some businesses, in part because the Cares Act states clearly that these loans cannot be forgiven.”
The Fed has come under criticism for the low take-up so far from the Main Street program. It has so far purchased just US$1.5 billion in loans, as of Sept. 16. Some banks, especially larger institutions, have balked at lending through the program to the riskier businesses that may need them the most.
Most Canadians say economy needs fundamental changes: report of COVID-19 priorities – News 1130
VANCOUVER (NEWS 1130) — More than six months into the pandemic, many Canadians say the economy isn’t working the way it should, according to a survey.
A Better Canada: Values and Priorities after COVID-19 report found 44 per cent of Canadians think the way the economy works needs to be changed, and many people want more climate action.
The report from the Environics Institute and Vancity surveyed 3,008 Canadians online between Aug. 17 and 24.
“There is a big appetite among the public for change,” Andrew Parkin, with Environics Institute, says. “They want to see the economy work better, they want to address inequality between rich and poor, they would like to see progress on making essential medicines free through the public health care system.”
He says about one in 20 people believe everything is fine the way it is.
“One of the things I found interesting is that even among those who are the highest income earners, fewer than one in 10 think the economy is fine the way it is.”
And when it comes to the environment, there is a lot of support for investing in clean energy technologies.
“They want to kickstart the economy by investing in green technologies or new businesses that can promote both the environment and growth at the same time,” Parkin says.
Even if it slows down economic development, the survey found three in four Canadians want the environment to be protected in the country. Eighty-four per cent also say it’s important for corporations to have policies and programs in place to protect the environment.
According to the report, almost all parents agree Canada should be a country where affordable and high-quality daycare for young children is available to all who need it.
Read the full report:
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