Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
European equities offer the last bastion of value
As concerns grow about record-breaking US and Australian equity market valuations, the nascent recovery in Europe is opening opportunities for value seeking investors. That’s the view of ETF Securities, the multibillion-dollar exchange traded fund issuer and manager.
In a recent article, the ETF Securities research team highlighted a number of companies exposed to the recovery theme. The region hasn’t been popular for quite some time, with the Eurozone debt crisis, rolling into Brexit, populism, negative interest rates and finally, the centre of the pandemic.
However, as we saw in Australia, as the post-pandemic recovery looks set to take place in Europe, interest is returning once again. According to the European Commission (EC), GDP is now forecast to grow by 4.8% in 2021 and 4.5% in 2022 in both the EU and the euro area. Inflation is forecast to average 1.9% in 2021 (+ 0.2) and 1.4% in 2022 (+0.1).
ETF Securities has highlighted five stocks from its EURO STOXX 50 ETF (ASX:ESTX) that it believes are well-positioned to ride the recovery theme.
- ASML – Dubbed one of the most important companies to the semiconductor industry, ASML is a provider of advanced technology systems for the semiconductor industry. It offers an integrated portfolio of lithography systems mainly for manufacturing complex integrated circuits. ETF Securities says “the Dutch business is among the most crucial for making semiconductors.” ASML makes the machines, called “EUV lithography systems,” that allow transistors to go on microchips.” These are sold to semiconductor makers to build better semiconductors. ASML’s share price is up almost 85% this year ,and is trading at US$721 thanks to the boom in electric vehicles and cloud computing which have supported semiconductor demand.
- L’Oréal – A well known and recognisable brand. L’Oréal is the largest cosmetics company in the world, manufacturing everything from shampoo to hair dyes, to perfume, to lipsticks. It owns a lot of other brands that most Australians would recognise, too, including Lancôme, Maybelline, Garnier, and Ambi,” says ETF Securities. The ETF provider is confident growth will continue to 2025 following a share price surge which has lasted ten years, driven by booming demand in China. According to a review by consultancy Bain & Company, Chinese consumers are “unstoppable” in their thirst for French luxury goods. Mainland China’s luxury goods market grew 48% in 2020, Bain estimates.
- LVMH (Louis Vuitton Moët Hennessy) – The name speaks for itself. ETF says “It has the luxury – pun intended – of having goods with extremely low-price elasticity of demand,” suggesting that that no matter how expensive LVMH’s champagnes, handbags, perfumes, clothes and all the rest become, people always buy them. With the completion of the jewellery giant Tiffany & Co acquisition, growth looks set to continue this year. As with L’Óréal, LVMH has benefited hugely from the rising middle class in China and its passion for French luxury goods.
- Pernod Ricard – Is the leading company behind some of the world’s most popular alcoholic drinks, with Absolut Vodka, Jamieson Irish Whiskey, Havana Club rum, Malibu coconut liqueur, Martell cognac, Aberlour scotch whisky and many others part of its stable. Pernod Ricard was an early entrant into India and China, with its higher-end cognac proving popular in the latter. It also has a foothold in almost every type of alcohol – champagne, rum, vodka, scotch, wine and all the rest. Having so many brands under its belt has helped it grow and expand on a global level.
- Airbus – A well known airline manufacturer with only one competitor, Boeing, Airbus was hard-hit by the pandemic, which closed borders and forced airline traffic to grind to a halt. ETF Securities says “the company is benefiting from the reopening trade as investors look for unloved ‘value’ stocks, that were hardest hit by Covid.” Looking forward, investors are keeping a close eye on how many postponed and cancelled orders of Airbus planes come back to life.
European stocks are starting to close higher and higher as a feeling of optimism and confidence for a post-pandemic recovery is seeping through. As vaccination rollouts continue, new infections and cases slowly decline, we think the above five stocks are a great way to play this recovery story.
