European mega-cap stocks are trailing their US counterparts, the "Magnificent Seven," as structural challenges and external pressures hinder growth. While the US tech titans have surged by an average of 55% year-to-date, European mega-caps like the GRANOLAS (a term for Europe's top market players) have posted modest gains of just 7.6% or less, according to Stoxx 600 data.
The S&P 500 has similarly outpaced Europe, with a 25% year-to-date climb compared to just 5% for European equities.
The Missing AI Boom in Europe
Jordy Hermanns, portfolio manager at Aegon Asset Management, attributes much of the performance disparity to the dominance of AI in US markets. Companies like Alphabet, Amazon, and Nvidia have leveraged the ongoing AI boom, driving innovation and significant returns. By contrast, Europe lacks a comparable tech sector, leaving its stocks without this explosive growth catalyst.
"AI remains a key driver of US market performance, while European equities are largely absent from this narrative," says Hermanns.
China’s Slowdown and Geopolitical Risks
European firms also face macroeconomic challenges specific to the region. Heavy reliance on China exposes European multinationals to the effects of slower economic growth and geopolitical tensions. This has been particularly damaging for sectors like luxury goods, where companies such as LVMH depend heavily on Chinese consumers.
The re-emergence of US tariff uncertainties, particularly under Donald Trump's proposed policies, further clouds the outlook for European businesses. Trump’s suggestion of a universal 10% tariff and a 60% tariff on Chinese goods poses risks for exporters like Ferrari, which rely on US and Chinese markets.
"Geopolitical risks weigh more heavily on European companies, creating a climate of investor unease," Hermanns explains.
Novo Nordisk: A Case Study in Declining Momentum
Novo Nordisk, Europe’s largest company by market capitalization, exemplifies the region’s struggles. After years of exponential growth fueled by its obesity drug Wegovy, the company has seen only a 4% gain in 2024 as competition from cheaper alternatives intensifies. While its market share remains robust, the days of unchecked dominance appear numbered.
Investment Insights: Diversification is Key
The continued dominance of US equities, driven by the Magnificent Seven, is reshaping global portfolios. Hermanns advises against an overreliance on US assets, emphasizing the importance of geographical diversification to mitigate risk amid uncertain global conditions.
Source: Euronews
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