The Nasdaq composite and S&P 500 rallied immediately after the French voted for their next president and advisors remain optimistic that the election of Emmanuel Macron is a positive development for investing in Europe, which boosted equities globally.
“Some industries will be vulnerable as the weak Euro has helped European exports and a rising Euro could cause a shift for investors to invest in more defensive segments of the Eurozone,” said Ben Barzideh, wealth advisor with Piershale Financial Group, a wealth management near Chicago. “I expect pharmaceuticals, some banks and other domestic sectors like automotive and construction to do well in this environment.”
Although the 19-nation currency gained against the pound in late May, overall the Euro has been weak.
“Valuations in Europe are much more attractive than U.S. equities,” said Bijan Golker, a CFP in Petaluma, Calif. “That’s because the U.S. dollar has been on a multi-year rally and is showing signs of softening and Europe's Purchasing Managers' Index (PMI) data is showing itself to be much stronger than other parts of the world right now.”
Macron beat out his competitor, the more conservative Marine Le Pen, who raised fears that France would join Britain in exiting the European Union.
“Paris is among four European cities, including Frankfurt, Amsterdam and Dublin, that are expected to benefit from the relocation of some of London's financial business due to Brexit,” Chris Chen, a CFP in Waltham, Mass.
According to experts, Europe is looking attractive not only due to Macron’s election but also because even with their low yields, the valuation of international stocks is at a 25-year historical average.
“Immediately, consumer goods and services companies such as Carrefour, Auchan, FNAC and Galeries Lafayette stand to benefit,” Chen said. “Service companies such as Bouygues Telecom, Orange and Gaumont may also benefit as well as industrials such as PSA and Renault in 2018. Real estate and advertising companies such as Havas, Publicis, JC Decaux and financial companies like AXA might also benefit.”
Although in the new normal of ever increasing uncertainty from geopolitics, economic and other factors, lower interest rates warrant higher valuations.
“When this is the case, we know that valuation is a reliable barometer for the value of the asset prices over the longer-term,” said David Karp, founder of PagnatoKarp, a fee-only financial advisory firm in Virginia. “Taking a longer-term view to investing in Europe should produce returns that exceed what we may receive from domestic investing for the foreseeable future.”
Juliette Fairley is a business and finance journalist who has written four personal finance books and has written for major news organizations. Juliette can be reached at [email protected]