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Playing global themes through European Equities

Tom O’Hara Headshot
Tom O’Hara
European Equities Portfolio Manager, Janus Henderson

The following article has been curated from contributions by our platform fund partners.

European opportunities emerging in 2024 range from the re-shoring of manufacturing, to investment in high-tech industries such as artificial intelligence and cloud computing.

What themes will influence European equities most in 2024?

We can expect more paranoia, more volatility, and more erratic behaviour in markets as everybody obsesses over recession, inflation, and whether interest rates have peaked. I don’t mind that. I can use it as an opportunity to buy companies that I think will succeed not only in 2024, but for the next decade ideally.

The amount of money being spent on building factories in the US right now has reached almost 0.6% of GDP – a level of expenditure on building manufacturing capacity not seen since 1990, before the World Trade Organisation was established.1

I view that as significant. We are entering a new era. We had over 30 years of ever-increasing globalisation – sending manufacturing to Asia. But that is now in a period of reversal. Even if it is only a partial reversal, it can be very powerful in terms of where capital expenditure will be deployed and which companies will benefit.

Where are the most compelling opportunities in Europe?

The opportunity-set includes companies that are listed in or born in Europe, but are often global in their reach and leaders in their fields. Many participate in the major shifts in the world right now, think re-shoring of manufacturing, artificial intelligence, and cloud computing. I see this as a capex ‘supercycle’, and it offers a great opportunity to invest in leading European companies.

Aerospace is a resilient, high growth industry and Europe has global champions, including one of the two major builders of aircraft as well as aeroengine makers. These businesses have multi-year order books. Then there are businesses that thrive in an environment with a higher cost of capital. Higher interest rates bring discipline back to industries. Take the brewing industry. Some of the small breweries, many of which appeared over the last 10 to 15 years during the low interest rate environment are going bust. The brewing industry is re-consolidating into the hands of the powerful incumbents, many of which are European.

Finally, it is about accessing the picks and shovels of this capex supercycle. It might be the heavy materials companies that do the groundworks or the roads. Or the capital goods companies that provide the hardware and the software that automates manufacturing facilities. Or the semiconductor capital equipment companies, at which Europe excels, that provide the machinery needed to produce the microchips that we will need in abundance in the years ahead.

What is the most important takeaway for an investor in Europe?

European equities allow investors to access global leaders at reasonable prices, often at discounts to their richly-valued US peers. European companies are good at making and doing things. They can therefore play a key role in reshoring manufacturing back to the Western world, automating those factories, building the data centres, or reinvesting in infrastructure such as roads, railways and bridges. We have the companies here in Europe that are not just a play on Europe – they offer access to global themes.

1 Source: US Bureau of Economic Analysis, US Census Bureau, Q3 2023.