By Nigel Green
Markets are buzzing as European stocks post strong performances, challenging the dominance of US equities.
Investors, lured by the prospect of better valuations and a perceived economic rebound, are considering shifting allocations.
But here’s the catch: changing your market exposure is rarely as straightforward as it seems.
A common misconception in global investing is that buying a region’s index means buying into that region’s economy. It’s an assumption that often misleads even seasoned investors.
The S&P 500, for example, is widely regarded as a pure play on the US economy—but it isn’t. More than 40% of its revenue comes from outside the US, meaning it’s deeply tied to global trends.
Similarly, the FTSE 100 is not a bet on the UK economy but a collection of multinational companies generating substantial revenues overseas. The same applies to the Euro Stoxx 50 and other regional benchmarks.
These indices are often more exposed to international demand, currency fluctuations, and geopolitical developments than investors realize.
This fundamental misunderstanding has consequences. When US tech giants dominate global markets, their influence stretches across borders, making European indices more tech-heavy than some may assume.
Likewise, when energy prices fluctuate or China’s growth slows, the impact is felt not just in Asia but in European and US multinationals alike.
Investors who believe they are de-risking by moving from one market to another often find themselves exposed to the very same global forces but just through different corporate structures.
In addition, the recent outperformance of European equities raises an important question: Is this a sustainable trend or just a cyclical moment? European stocks are benefiting from a mix of factors—lower valuations, improving economic sentiment, and a shift in investor focus toward defence, industrials and luxury goods.
But is this enough to warrant a long-term tilt away from US markets? Some argue that Europe’s structural challenges—such as aging demographics, regulatory headwinds, and political uncertainty—could weigh on sustained growth.
Meanwhile, the US continues to dominate in key growth sectors, including AI, cloud computing, and biotech.
Sector composition is another factor often overlooked in this debate. European markets lean heavily on financials, luxury brands, and industrial giants, while the US remains dominated by technology, healthcare, and consumer-driven growth stocks.
An investor shifting capital from US to European equities isn’t just making a geographic bet—they’re making a sectoral one, whether they realize it or not. Understanding what drives earnings in each market is critical, rather than simply reacting to headlines about outperformance.
This is why investors must look beyond the headline indices. Making allocation decisions based purely on regional narratives can lead to misplaced assumptions about risk and opportunity. A market rotation should be driven by deeper analysis—sectoral strengths, revenue sources, and macroeconomic conditions—not just the latest performance data.
We advise investors to scrutinize what they are really buying when they shift capital across borders. The rise of European equities is an important development, but the reality is more nuanced than a simple ‘US vs. Europe’ narrative.
The global nature of today’s markets means exposure is never as domestic as it appears. For those who truly want to diversify, the key isn’t just in selecting different markets—it’s in understanding the composition and global footprint of the investments they hold.
A reallocation that looks like a shift may, in fact, be a mirage.
(Author is deVere Group CEO and Founder)
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