For one week at least, more stock-market investors have turned to stodgy Europe than the U.S.
An analysis by Jefferies of fund flow data showed that European stocks, in the week ending Oct. 30, saw more inflows than U.S. ones.
The beat, to be fair, wasn’t substantial — $1.7 billion to $1.6 billion. But the fact European stocks came out on top is notable given that European stocks only ended 40 weeks of outflows the week before.
The case for Europe, to be clear, doesn’t rest on its economy. Eurostat reported this week that the eurozone economy grew 1.1% in the third quarter compared to the same period of 2018. The U.S. economy, on a year-over-year basis, grew 2% in the third quarter. Inflation in the eurozone was just 0.7% in the 12 months ending October, not remotely near the European Central Bank’s target of just under 2%.
Even economists who say Europe’s economy may pick up don’t expect much in the way of acceleration.
But brokers, including JPMorgan, have been pointing to the cheaper valuations in Europe. The price-to-earnings ratio for the Euro Stoxx components is 15.2, compared to 18.5 for S&P 500 stocks, according to J.P. Morgan.
Europe also is a logical choice for investors who believe the trade war will subside, as it’s more exposed to global trade than the U.S. Export powerhouse Germany in particular has felt the brunt of the U.S.-China trade war, as well as other conflicts around the globe.
The diminished likelihood of a so-called hard Brexit also is a support, though investors will soon begin to worry about the trade deal the U.K. and the European Union will have to negotiate.
Besides, European companies have long been seeking revenue away from home. According to FactSet, the components of the Stoxx Europe 600 get more of their revenue — 20% — from the U.S. than any other country. Europe overall accounts for 48% of these companies’ revenue.