Is the U.S. share juggernaut slowing? Seems like it. In the past month, U.S. equities have underperformed world stocks by 2.5%; Europe outperformed by a similar margin. European stocks enjoyed investment inflows in three of the past four weeks, BofA says.
Behind the shift perhaps are the growing odds of a presidential election victory for Democrat Joe Biden, worsening U.S./China ties and the continued rise in U.S. coronavirus infections that prevent economic activity from fully resuming.
Europe, meanwhile, has largely controlled the virus spread, economies are turning the corner quicker than expected and a proposed EU recovery fund is speeding up euro zone integration.
BlackRock and Goldman Sachs are among those recommending clients shift focus towards European stocks, which lagged U.S. peers throughout the previous economic cycle due to a paucity of “growth” stocks.
European outperformance looks likely until at least November’s U.S. election. Longer-term though, U.S. firms, such as tech names, may face headwinds from higher taxes especially from a Democrat administration. And in a world where investors attach increasing importance to environmental, social and governance (ESG) credentials, Europe’s higher ESG scores will be a plus.