Europe fell out of favour with investors for several years. The Eurozone debt crisis, Brexit, the rise of populism—the crises seemed to pile up. Meanwhile, America went from strength to strength boosted by FANG internet giants (Facebook, Amazon, Netflix, Google).
This year, investors are warming to Europe once more. Thanks to global economies reopening from the coronavirus, and to new fears that share prices of American businesses have overheated, Europe is seeing great interest again.
The companies listed are all found in the ETFS EURO STOXX 50 ETF (ASX Code: ESTX).
Five stocks that are well-positioned
Often described as the most important company that no one has ever heard of, ASML is a Dutch business that is among the most crucial for making semiconductors. Semiconductors are the small and often overlooked widgets that make modern computing possible. In particular, ASML makes the machines (called “EUV lithography systems”, in the jargon) that allow transistors to go on microchips. They sell these machines to semiconductor makers like Intel and Samsung, which allow them to build better semiconductors. ASML’s EUV lithography machines are not cheap either – they usually go for around €138 million euros.
ASML’s share price has surged in recent years thanks partly to the boom in electric vehicles and cloud computing spurring demand for semis. But also because ASML now has a near-monopoly position in EUV machines.
One of the most iconic brands in global fashion, L’Óréal, is the largest cosmetics company in the world. From shampoo to hair dyes, to perfume, to lipsticks–they make it all. They own a lot of other brands that most Australians would recognise too, including Lancôme, Maybelline, Garnier, Ambi (and plenty more). Their share price has surged in the past 10 years, driven by booming demand in China. According to a review by consultancy Bain & Company, Chinese consumers are “unstoppable” in their thirst for French luxury goods. Mainland China’s luxury goods market grew 48% in 2020, Bain estimates. They project the growth will continue to 2025.
LVMH (Louis Vuitton Moët Hennessy) is the luxury company par excellence. It has the luxury – pun intended – of having goods with extremely low price elasticity of demand. Meaning that no matter how expensive LVMH’s champagnes, handbags, perfumes, clothes and all the rest become, people always buy them.
It has been in the news recently as it finalised the purchase of jewellery giant Tiffany & Co. It also struck a partnership with American rapper Jay-Z to buy 50% of his Armand de Brignac champagne brand for about $300 million, as part of the growing trend for celebrity-endorsed premium alcohol. As with L’Óréal, LVMH has benefitted hugely from the rising middle class in China and their passion for French luxury goods.
Pernod is the force behind some of the world’s most popular alcohol. Absolut Vodka, Jamieson Irish Whiskey, Havana Club rum, Malibu coconut liqueur, Martell cognac, Aberlour scotch—and many others are part of their stable. Pernod has an advantage over other alcohol businesses in that its sales and products are truly diversified. It has a foothold in most countries and was an early entrant into India and China, with its higher-end cognac proving popular in the latter. It also has a foothold in almost every type of alcohol – champagne, rum, vodka, scotch, wine and all the rest. This allows it to respond to changing consumer tastes. An ongoing tailwind is the “premiumisation” of alcohol – with consumers voting for quality over quantity when drinking.
The one and only, the world’s largest airline maker, and the pride of German and French engineering. The company – and its only major competitor, Boeing – was very hard hit by Covid-19, as demand for overseas travel fell off a cliff. However, the company is benefitting from the reopening trade as investors look for unloved “value” stocks, that were hardest hit by Covid.
Going forward, investors will be watching to see how many postponed and cancelled orders of Airbus planes come back to life. Qantas, for example, was forced to cancel an order of 12 A 350s, which promised to provide non-stop flights to Paris, London and New York. Qantas will be revisiting its order at the end of this year. Airbus has also been ahead of the curve in exploring zero-emissions planes, with increasing research into hydrogen power.
ETFS EURO STOXX 50 ETF (ESTX)
For investors wanting to buy some of the best of Europe, the ETFS EURO STOXX 50 ETF (ASX Code: ESTX) can provide one solution. ESTX follows the premiere share market gauge for the Eurozone. It invests in 50 blue-chip companies (including the above) and provides investors access to some of the best of the continent in a simple trade.