"Now to European Stock Markets" Growing Optimism for Economic Recovery

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[Asia Economy Reporter Minji Lee] While the US stock market, which had rapidly risen on expectations of economic recovery, has entered a correction phase, the relatively sluggish European stock market is showing strength. As Europe secured the second-largest supply of COVID-19 vaccines, there is growing optimism that the pace of economic normalization will accelerate, and related funds are also performing well.

On the 24th, financial information provider FnGuide analyzed the year-to-date returns of overseas equity funds by region and found that the returns for the European region and Emerging Europe region were the highest at 9% and 10%, respectively. The European region's returns stood out compared to North America (7.9%), Emerging Asia (7.3%), Emerging Markets (2%), and Latin America (1.6%).

The primary factor boosting expectations for economic normalization is the vaccine. Just as the US's proactive measures to secure vaccines drove the stock market up, Europe's large vaccine contract volumes, second only to the US, have propelled stock market gains. According to the international statistics site 'Our World in Data,' as of the 22nd, the number of vaccine doses administered per 100 people in Europe shows that the UK (89), Hungary (82.88), and Iceland (62.72) have vaccination rates comparable to the US (84.9). Countries like France, Germany, Spain, Finland, and Denmark, which were at about 10 per 100 people in March, have risen to the 50s.

The fact that massive liquidity is being supplied also raises expectations for further gains in the European stock market. As of the end of last month, the fiscal expenditure of major European countries relative to GDP was 53%, higher than the US's 45%. Lee Jaeman, a researcher at Hana Financial Investment, explained, "The risk of bankruptcy among European companies is rapidly declining," adding, "Corporate investments are increasing, and housing prices, which support domestic demand activation, are hitting record highs."

The fund investing in Europe with the highest returns was the ‘Mirae Asset TIGER Euro Stoxx Dividend 30 ETF (Exchange-Traded Fund),’ which recorded a performance of 19% year-to-date. This fund mainly holds companies with strong dividend tendencies such as the Dutch insurance company ‘Achmea,’ fire insurance company ‘NN Group,’ Italian telecommunications company, and logistics firm ‘Deutsche Post.’ Following this were the ‘Hanwha Europe Representative Fund (14%),’ ‘Shinhan Euro Index Fund (12%),’ and ‘KB Star Euro Index Fund (12%),’ which also showed excellent returns.

However, there are also forecasts that the European market's strength may not continue for a long time. This is based on the judgment that, due to the characteristics of European companies, structural profitability innovation is unlikely. Kang Daeseok, a researcher at Eugene Investment & Securities, said, "European companies chronically have poor return on equity (ROE), so even if the COVID-19 situation is resolved, it will be difficult for their profit structures to change innovatively."

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