Author Topic: What happened to European stocks starting April 2015?  (Read 7662 times)

RuleNumberOne

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What happened to European stocks starting April 2015?
« on: January 06, 2020, 09:05:22 AM »
The FTSE MIB (Italian index Europe's third-largest economy) is up less than 1% since April 2015.
The DAX (German index, Europe's strongest economy) is up by less than 7% since April 2015.

The European stagnation has been going on forever. The ECB already owns one-third of all government debt of the Euro area.

Can the Italian government fake GDP growth rates (of -0.1% to 0.1% every quarter for the last two years) or are those growth rates real? Even with zero interest rates they still need to refinance the debt because there is no hope of ever repaying it.

Will Europe crash or will it manage to stay forever in the zero-rate zero-growth state?
« Last Edit: January 06, 2020, 09:07:45 AM by RuleNumberOne »


no_free_lunch

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Re: What happened to European stocks starting April 2015?
« Reply #1 on: January 06, 2020, 10:52:00 AM »
I don't know the answer but if you look at the ETF VGK it is even worse, they have gone nowhere since 2006.  On a pure price basis the index is actually lower than in 2007.  I assume it has to do with bank shareholders being basically wiped out.

I suspect that stagnant demographics and socialism is just a wicked combination to overcome but my opinion is hardly scientific.  Curious to see others thoughts.  The EU stocks are much cheaper based on shiller ratio than their US counterparts so if this is just a temporary issue, they could be good investments.

tede02

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Re: What happened to European stocks starting April 2015?
« Reply #2 on: January 06, 2020, 11:02:18 AM »
The story is really a lot worse. The Stoxx 600 index has gone no-where since the year 2000. Peaked around 400 in March of 2000. Currently the index sits around 416.

Additionally, the front page of the B section in today's WSJ shows China's Shanghai has gone nowhere in ten years. In-fact, -6.9%.

I keep wondering if we're due for a period of stagnation in the US.
« Last Edit: January 06, 2020, 11:04:27 AM by tede02 »

TwoCitiesCapital

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Re: What happened to European stocks starting April 2015?
« Reply #3 on: January 06, 2020, 02:12:49 PM »
The story is really a lot worse. The Stoxx 600 index has gone no-where since the year 2000. Peaked around 400 in March of 2000. Currently the index sits around 416.

Additionally, the front page of the B section in today's WSJ shows China's Shanghai has gone nowhere in ten years. In-fact, -6.9%.

I keep wondering if we're due for a period of stagnation in the US.

Gundlach points all of this out in a recent presentation.

Basically says Japan reached it's peak in the 1990s and has yet to surpass it's prior highs.

Europe reached it's peak in the early 2000s and has yet to surpass it's prior highs.

Emerging markets/China reached their peak in 2008 and have yet to surpass their prior highs.

His point is that U.S. equities are likely the next to peak and not reach their prior highs for 10-20 years.


As far as why - I'm sure it's a combination of things.

Starting valuations of the look back (European stocks ere arguably massively over valued in 2000s). On top of a negative starting point, Europe was much slower to re-act and delver the banking sector following the 2009 crisis slowing the recovery AND has a head start of a few years on the aging demographics as compared to the U.S. Lastly, Europe tends to have more onerous regulations AND hasn't participated much in the development of new industries/improvements (i.e. Facebook's, Google's, Netflix, Tesla, etc).

 Put it all together and you get a decade plus of underperformance but I'd say the largest factor was starting valuations - the latter stuff would have been compensated for if you bought at single-digit mutliples.

thowed

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Re: What happened to European stocks starting April 2015?
« Reply #4 on: January 06, 2020, 02:53:37 PM »
I'd take another angle and suggest that European indices just have more crap companies in them than the US.

I think that if you look at the top European funds, they've done pretty nicely over time and outperformed their benchmarks, by 'avoiding the bad stuff'.  Ditto with China, even more so.

The US has by far the most high quality and efficient index, so it's done better, and is also extremely hard to outperform over the long-term.

Spekulatius

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Re: What happened to European stocks starting April 2015?
« Reply #5 on: January 06, 2020, 03:34:23 PM »
1) I think multiples in Europe have compressed over the years. They were quite richly valued in early 2000ís and valuations have come down.
2) Overall, quality is lower, as measured by ROIC. Demographics are worse, but with export oriented economies, thatís not necessarily a restriction to growth.
3) There is less of a shareholder culture in Europe. most Europeans hold no or very little stock and there is no 401k equivalent. Large buyers like this tend to create a steady bid and that. is missing in Europe.
4) I recently looked at some very LT performance numbers and based on memory, since the DAX was created in 1990, the index is up by about 7.8x, which is quite similar to SP500, so over the longer term, at least the German index has performed equivalent. That said, it outperformed in the 1990 and underperformed since the GFC. Itís similar to emerging markets and I think the correlation is no coincidence.
5) The financial sector is permanently impaired . Banks, but also life insurers etc. are impaired by a combination of negative interest rates and competition.
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Gregmal

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Re: What happened to European stocks starting April 2015?
« Reply #6 on: January 06, 2020, 03:44:47 PM »
From afar, it seems a combination of, on average, lower quality companies compared to S&P 500 as some have mentioned, lower interest in equities from the average European(possibly because of a greater reliance of socialist programs to subsidize ones retirement), and probably also something to do with the financial system/banks there being a mess. Negative rates are probably also a factor. I know of a surprising number of EU investors who look at US Treasuries and CDs as gold mines and its solely because of the risk free comparable over there.

Some still seem to do ok, again showing its a game of skill. I've found few better at it here than John Hjorth. Every once in a while whipping out a stud of a stock pick plucked from his neck of the woods. But otherwise, its tough hunting it seems.




tede02

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Re: What happened to European stocks starting April 2015?
« Reply #7 on: January 06, 2020, 06:12:03 PM »
I was thinking about this further this evening, specifically the massive US outperformance over the last 10 years. One huge force driving the domestic markets has been the collection of tech/software businesses which have collectively created literally trillions in market value. It's extraordinary to think about. Mark Andreeson famously wrote a piece in the WSJ (2011 I believe) which said something like "software is eating everything." I actually read the article the day it was published in the print edition of the WSJ. Unfortunately I wasn't smart enough to see or understand the future as he was describing it. Would be interesting to see a study on how much impact, say, the 10 or 20 biggest tech names have contributed to the market surge. Obviously the recovery of the big banks has been helpful too.

I keep thinking if you don't have these tail winds, and others like falling interest rates & QE, the next 10 years are going to be a much different story. 

Gregmal

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Re: What happened to European stocks starting April 2015?
« Reply #8 on: January 06, 2020, 06:39:29 PM »
I was thinking about this further this evening, specifically the massive US outperformance over the last 10 years. One huge force driving the domestic markets has been the collection of tech/software businesses which have collectively created literally trillions in market value. It's extraordinary to think about. Mark Andreeson famously wrote a piece in the WSJ (2011 I believe) which said something like "software is eating everything." I actually read the article the day it was published in the print edition of the WSJ. Unfortunately I wasn't smart enough to see or understand the future as he was describing it. Would be interesting to see a study on how much impact, say, the 10 or 20 biggest tech names have contributed to the market surge. Obviously the recovery of the big banks has been helpful too.

I keep thinking if you don't have these tail winds, and others like falling interest rates & QE, the next 10 years are going to be a much different story.

Its funny you mention tech, but I was looking through some stuff over the weekend and just continued to be amazed at truly how much market cap some of the tech companies have. Not just the Googles and the Amazon's or Saleforces... not even the top 10-20 per say. I am hardly a tech investor, at all. But when looking at, say, ADSK, SPLK, TWLO, WDAY...thats 4 companies and well over $100B in market cap! And I'd wager 9/10 everyday Americans dont even know what they are, and probably even a big number of investors couldn't give you all that great of an answer on what each one does and how it differs from the next tech co. But dont stop there, you can easily continue to find more... ADBE, VMW, NOW... there another quarter trillion... Its utterly remarkable.

RuleNumberOne

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Re: What happened to European stocks starting April 2015?
« Reply #9 on: January 06, 2020, 08:31:24 PM »
Yeah, Europe will never ever be a force in computer hardware/software or biotech. The main advantage the US has is that scientists and engineers from all over the world want to study and work in the US. It is a network effect, a self-reinforcing loop.