Investment Opportunities in Europe

Investing in European markets is more viable thanks to new initiatives. Discover new opportunities to invest in Europe, particularly in green energy.

Investing in Europe has long been considered something of a risk due to limited GDP growth prospects, an aging population, and sluggish economy. But things are changing and the  market is better and more full of youthful energy than many investors may think. 

Europe is quickly regaining its economic footing following the COVID-19 pandemic, largely through an increased focus on investment.  While some areas remain stubbornly resistant to growth, a big push towards investing in digitalization and climate change initiatives are creating a host of new opportunities. 

As an example, the EU has just decided to digitialize its Schengen Visa, a system that until recently had remained firmly stuck in the past with a cumbersome paper application process. 

Below we’ll break down the reasons why investment in Europe is still considered a risk, why the sition is changing, and what the future holds.

Why Some are Reluctant to Invest in Europe

One of the biggest reasons that bond investors are reluctant to invest in Europe are lingering memories of the 2010-12 eurozone debt crisis and the threat that hung over sovereign bonds during this period. 

Additionally:

• Europe faced a double-dip recession during this time due to the European Central Bank’s decision to increase interest rates
• European governments made the situation worse by tightening fiscal policy. 
• Stock prices of European banks have lagged behind the US ever since the 2008 global financial crisis and have struggled to recover
• While the US S&P 500 index has more than tripled in the past decade, the Stoxx Europe 600 index of top European shares has only increased by around 40%. 

• Lucrative tech stocks make up a larger share of US equity indices accounting for higher performance than European markets. 
• Skepticism towards the finance sector is high in European countries, with a growing attitude that the sector is consuming too many human resources.
• Limited demography shrinks the space for high-return deployment of capital compared to more dynamic markets such as East Asia and the USA. 
• The US economy expects a stronger recovery than the EU following the pandemic due to large fiscal package agreements from Washington.

 

Additionally, investment in Europe is hampered by an attitude towards vetoing new foreign investors who do not fit with current European policy. Unexpected shifts in policy, such as Brexit, also make many hesitant to invest in Europe.

Reasons for Investing in Europe

Despite the downsides listed above, Europe is largely considered an overall stable market and remains a world leader in many sectors such as high-end engineering, luxury goods, and elite car manufacturing. 

There are several reasons to be optimistic about investing in the region:

 

• Its position as one of the world’s largest economic regions.
• The respect for the rule of law, liquid currency, and functioning capital markets present in Europe.
• On a sector-by-sector basis, European stocks may be priced slightly higher than corresponding US ones. 
• Due to lower levels of specialization among EU fund-managers and stringent listing requirements, public markets remain less attractive to European companies, allowing American firms to fill the gap.
• Attitudes towards capital allocation appear to be changing, especially in areas like ESG and climate change.

Furthermore, the EU has greatly relaxed macroeconomic policy and suspended tough budget rules because of the COVID-19 pandemic. They have also introduced hefy recovery funding to help stabilize the eurozone which may lead to regular common borrowing, leading in turn to a more stable and integrated financial system. 

Finally, strong levels of innovation and entrepreneurship, particularly in green energy initiatives, mean that international investors are taking a closer look at European markets. 

Green Industry Investment in Europe

The green agenda has quickly become a guiding principle for European Union and national decision-making in the region. The European Commission President Ursula von der Leyen has made the “European Green Deal” the flagship policy of her tenure and set ambitious targets for carbon emission cuts by 2030 and 2050. 

The EC is also likely to introduce import tariffs based on carbon content and is preparing to classify types of assets and investments according to how they fit with decarbonisation. This means that many businesses with assets that violate climate rules are scrambling to avoid running into steep penalties.  

It also means that companies that provide carbon-saving solutions could gain greater profits in Europe than in other markets. Green industries expected to benefit from the new rules include: 

 

• Hydrogen-powered transport providers
• Electric vehicle battery and charging point manufacturers
• Synthetic fuel makers
• Turbine manufacturers
• Recycling machine makers

Such companies could see their stock market value soar in the coming years following the new EU legislation. Investors would be wise to take note. 

Additionally, shareholders of European-based businesses that benefit from the EU’s green intiativate could also reap larger rewards if they later find success in global markets. 

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