Three key investment themes in European stock markets

The recent French election has created significant disruption in European stock markets¹. On the BlackRock Greater Europe Trust, we choose not to try and anticipate these short-term movements, but instead to look for areas of structural growth and investment themes that can transcend short-term political and economic disruption.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Our three investment themes in European markets

We have three key areas represented in our European equities portfolio, where we find a range of long-term investment opportunities: semiconductors, luxury goods and healthcare. Each area has compelling growth characteristics that should allow companies exposed to those areas to grow over the long-term regardless of the strength or weakness of the region’s economies. At the same time, Europe can claim world-class companies in each area, with market-leading technology and innovation.

Semiconductors

In semiconductors, for example, Asia has dominated, but European companies are increasingly building a crucial role. The building block of all electronic products, semiconductors play a crucial role in the long-term growth of areas such as artificial intelligence, electric cars, plus defence, smart devices and gaming. As technology becomes more sophisticated, it requires smaller, faster and greener chips – and more of them.

Semiconductors have become a battleground between nations. Governments across the world are racing to secure chip dominance. In 2023, the EU passed the European Chips Act, designed to reinforce the region’s technological sovereignty and double its market share in semiconductors to 20%.² It sought to build up the semiconductor ecosystem in the EU, and ensure the resilience of semiconductor supply chains. The Act allocated $47bn to support the sector’s growth³, which in turn supports investment in the semiconductor industry.

Luxury goods

Luxury goods are another important area of long-term growth in European equities. It is an area where Europe is dominant, accounting for around two-thirds of all sales of luxury products⁴. Many of the largest companies in Europe are now in the luxury sector, including LVMH, Ferrari and Hermes⁵ and in April 2023, LVMH became the first European company to surpass $500 billion in market value.⁶ These luxury behemoths can command significant margins, often rivalling those of the major technology companies.⁷

The growth of the luxury goods sector is supported by the rise and rise of the Asian middle class. Asia is expanding fast, with the IMF forecasting growth of 5.2% for Asia for 2024, and another 4.9% in 2025. This is more than double the projections for developed market economies (1.7% and 1.8% respectively).⁸ This is creating a new layer of wealth in Asia, with around 1.5bn people joining the middle class by 2030.⁹ These emerging consumers have helped support the growth of the European luxury goods sector. In this way, investing in luxury goods is a compelling way to play economic growth across Asia. 

It is worth saying that while the long-term outlook is good, with all long-term investment themes, there will inevitably be periods of weakness. The luxury goods sector has just experienced a more difficult period, with some weakness in Chinese demand. During these times, the skill and competence of the management team makes a significant difference. Luxury goods companies tend to be well-run, with long-established management teams and experience of managing through downturns in the sector.

Healthcare

The fund also invests in healthcare companies. These are supported by ageing populations across Europe, which are creating more demand for medical products and health services. There are also a number of breakthrough treatments emerging in areas such as obesity, gene therapy and cancer. GLP 1s were the stand-out development of 2023, with drugs such as Wegovy and Ozempic coming to market and producing dramatic results in the treatment of obesity. A number of European healthcare companies have a strong pipeline of growth as they tackle these important areas.

In the end, we believe these areas of structural growth can transcend short-term economic and political factors in Europe, and create diverse opportunities for investors looking at European equities. On the BlackRock Greater European Trust, this is where we focus our attention.

¹ MarketWatch - CAC40 index - 9 July 2024
² European Commission - European Chips Act - January 2024
³ CNBC - Europe approves its $47bn answer to Biden’s Chips Act - 19 April 2023
⁴ FT - Europe’s new success stories are built on high luxury, not high tech - 4 June 2023
⁵Companies market cap - Largest companies in the EU by market capitalization - 9 July 2024
⁶ CNBC - Luxury goods giant LVMH becomes the first European company to surpass $500 billion in market value - 24 April 2023
⁷ FT - Europe’s new success stories are built on high luxury, not high tech - 4 June 2023
⁸ IMF - Global Economic Outlook - April 2024
⁹ WE Forum - This chart shows the rise of the Asian Middle Class - 13 July 2020

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Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

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