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Buy Europe? Traders Think The Unthinkable Amid Ukraine ‘Peace’ Talks
They're buying what?
It's been so long since anyone bought European stocks that you'd be forgiven for a skeptical smirk at figures showing a $2.5 billion net inflow to Europe-focused equity funds over the last week.
It was the largest haul in over two years and, just as notably, the first net inflow in 20 weeks. The figure below's a not-so-subtle reminder that European shares are perpetually out of favor.
Generally speaking, there's not a lot to like. The European economy lacks dynamism, th
Indeed, Euro defense stocks are ripping on the prospect of a “peace” deal.
“Geopolitical conflict’s positive for US stocks, but geopolitical peace is positive for international equities,” Hartnett went on, adding that “no one’s positioned for RoW equity outperformance.”
Great point. That also helps explains the stampede into first Japanese and now the “uninvestable” Chinese markets. Perhaps there this also reflects a bit of distrust of the outlook for the US economy and stocks?
I don’t think that distrust of the US economy or US stocks are the reason for capital flowing into EU stocks. The problem with the US stock market is that maybe 100 of S&P 500 companies have consistent enough earnings, and enough liquidity of their stock where most institutions would allocate a large enough amount of their capital, to earn enough of a risk adjusted return, to be worthy of putting one’s capital at risk. And such stocks aren’t exactly “undiscovered” and therefore they are at least fully valued if not overvalued for their projected earnings growth. That’s why the DeepSeek paranoia that shook all the nervous Nellies out of NVIDIA when it dropped the stock from YTD high of $150 to intraday low of $113 barely 2 weeks ago, was such a blessing. I forced myself to buy some 120 strike/March expiry call options then, which are now up over 100% by the close today. The biggest benefit I see to EU stocks is that the cost of energy/nat gas will go down if Russian pipeline flows are restored, once sanctions are lifted, after the war “ends”. Also, the rebuilding of Ukraine will benefit some companies. The openly transactional and mercantilist policy of the current US administration is motivating NATO members, particularly those bordering or proximate to the Russian Federation, to spend more on their own defense. A tenuous peace is the most they can hope for. Regarding Chinese stocks, I can’t imagine putting any significant percentage of one’s capital at risk in Chinese ADR’s with shareholder’s rights that are flimsy at best, with companies at the mercy of a capricious tyrant, well chronicled in excellent articles here.
FWIW, Fisher Investments is all in on Euro stocks this year since they are so cheap.
To me this may be the scariest company in the investment management business.
Anyone have a take on kering or euro luxury brands in general?
Well here’s the thing to understand about Kering: It’s inferior, in terms of its portfolio, to LVMH in my opinion. Kering’s hottest brand right now is Balenciaga, and they have Saint Laurent which will never go out of style. But Gucci’s the flagship and, again in my opinion, it’s ice cold.
LVMH has Dior, Celine, Loewe, Givenchy, Fendi and, of course, Louis. Louis is on fire, Dior’s as good as it gets (with the exception of Hermes), Celine and Loewe are getting a lot of traction, Givenchy’s kinda “meh,” but only comparatively (it’s still a great brand) and Fendi’s kinda like… I don’t know, Infiniti cars, which is to say it’s not for everyone, but the people who like it stick with it.
All that to say no one’s going to prefer Kering brands to LVMH brands generally speaking. Balenciaga’s very hard to pull off for regular people, which is to say most people can’t pull it off, and although Saint Laurent’s a mainstay, nobody gets fired up to go to Saint Laurent.
By contrast, going into Louis is like going to Willy Wonka’s chocolate factory, wearing Dior sets you apart prestige wise (the price point’s generally about 20% higher even as high-end luxury goes), Celine and Loewe mean you’ve spent some time thinking beyond the names everyone knows (I have a Celine messenger bag and I got it purely because everyone and their brother has Louis now) and even if you’re not going to wow anybody with Givenchy, it’s certainly not going to get you laughed at, and their basic archetype sweaters and tees (basically just the logo spelled out over neutral tones) are great just to wear with jeans when you don’t want to come across as obnoxious.
By contrast, and without wanting to be too abrasive towards a legendary brand, if you walk into somewhere wearing a Gucci sweatsuit, people are going to snicker. It’s inevitable. Like “Why? You had $4,500 to spend on an outfit and you went with the Gucci sweatsuit? That was your first choice?”
Personally, I don’t like the Kering turnaround story. Making Gucci cool again’s going to be an uphill battle (it feels like the Fila of luxury at this point). Laurent and Balenciaga need very specific clients (skinny, fitted, elegant with YSL and over-the-top eccentric with Balenciaga). They have Bottega too, and also Alexander McQueen. Bottega’s fine, but the ready-to-wear’s nondescript — nobody’s like, “Dammmn, that Bottega sweater’s cold! Is that the new collection?!” If you can differentiate between this season’s Bottega versus last season’s Bottega, you probably work at Bottega. And McQueen seems to end up in the bargain box at Saks OFF 5th waaay too often.
So, I think Kering’s a value trap. I don’t pretend to know what will or won’t happen to LVMH the stock, but I do know that as a collection of brands, it’s vastly superior.
A little more, since you asked. Hermes is crème de la crème brand wise. I haven’t the faintest when it comes to the stock, but as far as the product goes, it gets no better than Hermes. Prada’s Prada. I mean, “Congrats, you wear Prada.” It’s great, and you get a pat on the back, but at that price point, I’ll take Dior and Hermes all day, and I imagine I’m not alone. One brand that’s interesting (and it’s publicly traded) is Moncler. Their thing is cold weather jackets and you can spend a lot on those, but the price point for their other stuff’s far less than your ultra-high-end houses. Polos are $350-$500 and tees are typically $250-$400. It’s “affordable” luxury and I gotta tell you, it fits pretty damn well. The quality’s good too. And the stock’s been range-bound for years. The issue there, though, is that Moncler’s not an aspirational brand. Generally speaking, it’s not made in Italy, nor France, nor Spain, and it feels a little faddish to me, not because it’s “out there” style wise (it’s really pretty tame on that score), but just because it seems like it caught on in part in recent years because of the lower price point, and I don’t think that’s really a good place to be in luxury: “We’re hot because more people can afford us.” They’re also plugged in pretty well to the crossover scene, where that means they do a lot of collaborations with other quasi-luxury brands like Palm Angels. I like that personally, but that too may feel faddish to some people. No one who’d buy a Hermes sweater would be caught dead in “Moncler X Palm Angels” (except maybe me), and I think that’s a problem, because it raises questions about whether Moncler’s actually a luxury brand.
We now know where to find you when you’re not writing.
Mr H, give us Ur recommendations about wristwatches….Thanks
Hermes company history (according to hermes) is actually pretty cool
Thanks for the color.
Do you have a take on the buy europe meme, other than what you say in the fourth paragraph?