European listed companies are surprising investors with strong results. Profit growth reached 22% in the second quarter, while revenues also exceeded expectations. This optimism is being reflected in stock prices. In BNR’s Investors Panel, APG Chief Economist Thijs Knaap explains the recent upswing. His conclusion: Europe is benefiting from a broader economic recovery that extends well beyond the semiconductor sector.
The strong performance of European equities this year has surprised many investors. After all, European stock markets have significantly lagged behind the United States over the past decade. According to Thijs Knaap, that recent history has reinforced the perception that US equities inherently generate better returns. “But such a pattern is not a law of nature. In previous periods, European equities have also outperformed their American counterparts.”
According to Knaap, the main driver behind the current rally is the improvement in the European economy. “Ten years ago, Europe was struggling with extremely low interest rates and an environment in which investment decisions were postponed. Today, sentiment has completely shifted. Companies are investing again, governments are increasing spending on economic development, and this is creating a positive cycle that is translating into stronger corporate performance.”
Broad-based growth
Moreover, this growth extends beyond the technology sector. Semiconductor companies such as ASML are naturally benefiting from continued demand for chips, but Knaap believes it is particularly telling that other sectors are also performing strongly. “Banks are doing better than before, and industrial companies are benefiting from the improved economic climate as well.” According to him, the fact that European equity markets are keeping pace with the United States demonstrates that the strength of European markets is built on a broader foundation.
In addition, European equities continue to trade at lower valuations than many US stocks. While the US market is dominated by a handful of technology giants, Europe offers greater diversification, according to Knaap. This makes European equities attractive to investors who prefer not to rely entirely on the performance of a small number of large technology companies.
In the same episode, Knaap also discussed US interest rate developments and the Japanese yen. In addition, he elaborated on APG’s recent investment in Rotterdam-based technology company Nearfield Instruments, which develops inspection technology for the semiconductor industry. Listen to the full Investors Panel episode here.