Europe faces a bleak economic outlook following a series of supply disruptions all over the bloc and the impact of the war between Russia and Europe on energy and food supplies.
Investment Banking Giant Warns Investors as Stocks Plummet
Willem Sels, HSBC’s global chief investment officer, revealed that investors should steer clear of Europe. In the hunt to allocate stocks, it is in the investor’s best interest to overlook the European market. The continent is in its worst energy crisis, and Sels admitted that the risk rewards associated with stock investments are lacking.
Europe’s current economic prospects make for grim reading as various factors continue to stifle growth. Central banks worldwide continuously push an aggressive monetary tightening policy to fight inflation.
Investors traditionally shift their attention to European stocks when trying to stem volatility. They do this by investing in stocks, offering stable and long-term returns. In addition, they also trade with companies that offer low-priced investments relative to their profit opportunities.
Conversely, the United States has an ample supply of significant name equities—companies that are expected to increase earnings quicker than the industry average.
Moreover, Sels added that Europe has a low-cost market compared to the United States. However, the HSBC executive revealed that the differences between the two could not replace the risk that investors would face.
For investors, Sels suggests that the focus should be on the quality of the investments. The differential quality between the U.S. and Europe matters in this case.
The expert noted that he believes investors make decisions based on earning potential, not style. In this case, investors should avoid European stocks because of the cheaper valuations and interest rate direction.
Europe Considers Cutting Industrial Gas Usage
The overreliance on Russian gas for domestic use put Europe in a tight situation following the war in Ukraine. Europe is considering diversifying its gas supply to help reduce the growing energy crisis on the continent.
Moreover, this comes after Russian state-owned oil firm Gazprom cut off Europe from its gas supply line.
Commenting on the latest incident, Nigel Bolton of BlackRock Fundamental Equities revealed that this calls for quick answers. And to mitigate this, companies with high energy bills will bear the brunt of the income. Bolton noted that this is especially so in cases where the energy source is fossil fuels.
Europe’s chemical industry has an energy demand of 51 million tons as of 2019. Over one-third of their operational power is supplied by gas, with less than 1% from green energy sources.
Furthermore, Bolton believes that some large companies can withstand periods of gas shortages. They may do this by paying below the daily cost of what they consume, or consumers will bear the cost through the price increase.
Bolton, however, suggests that smaller companies should be considered in this case as they might struggle. Companies with low cash reserves may crumble under rising energy costs and ultimately fold up.