Donna Block
Share World
Europe has got it and got it bad. What have they got? The flu? Yeah, they have that but they’ve also got “the fever”. Stock and bond fever, that is. All across the continent individual investors are getting into a frenzy over the share markets.
Just a few short years ago, European investors were so cautious they rarely bought stocks at all. And venture capitalists were few and far between. But in a historic switch that has both astonished and alarmed financial analysts, investors from Frankfurt to Brussels to Amsterdam and beyond have fallen madly in love with entrepreneurs, new companies and anything that remotely resembles a high-technology stock.
Until recently many promising European biotechnology and electronics start-ups found it so difficult to raise money at home that they listed in the United States. Some moved their corporate headquarters across the Atlantic. But in the last two years, the once-stodgy exchanges have started a series of “new markets” tailored to small companies.
Compared with the enthusiasm in the US, where start-up companies – especially the dot coms after their names – have been listing their shares at enormous valuations, the love affair in Europe is still in its early stages. But compared with Europe’s past, it’s a revolution. In turn, the region’s once bloated and bureaucratic big companies are downsizing, streamlining their operations and becoming formidable continental and global competitors.
Moreover, the influx of American foreign investment capital into equities in Western Europe – nearly $1-trillion, twice the total for the rest of the world, according to the Securities Industry Association – has also brought an American-style respect for “shareholder value” into vogue.
One trader in London noted that there is pressure on governments to privatise state- owned assets, avoid interfering in company affairs and create legal environments attractive to foreign buyers.
There are a couple of major reasons driving Europeans to own shares and invest in equities. Firstly, interest rates have declined sharply across the continent; investors who traditionally put all their money in bonds and savings accounts are chasing stocks in search of better returns.
The second reason is the growing weakness in government-run pension schemes. After years of relying on social security, Europeans are being urged by their governments to take a greater hand in planning their own financial futures. The result has been a mad rush to mutual funds and a political trend toward promoting American-style private retirement funds, which become huge buyers of equities.
The euro, the European single currency, has also had a hand in the drive towards share ownership. Replacing national currencies, it has transformed economic policy across the continent as governments slashed their budget deficits and generous social programmes.
In the process inflation and interest rates have been cut in half in just two years. The euro is also fostering the spread of stock trading across national borders. It was recently announced that eight stock exchanges across the continent will be setting up a common platform, making trading simpler.
In the boom of the last few months, Europe’s mainstream stock markets have been flooded with tens of billions of dollars and have climbed much faster than those in the US. Most analysts expect even larger amounts of money to make their way into European exchanges in the next few years.
An ever-increasing number of Europeans have been infected with another bug – the one that gives you “online investment fever”. As surfing the World Wide Web gains popularity, more and more Europeans are logging on to shop for financial products, retrieving detailed financial information and buying and selling shares.
True, compared with the US, where more than 20% of all stock trades are now entered over the Internet, the movement is in its infancy. But as the trend gathers force, US Internet brokers have begun moving into Britain and are increasingly setting eyes on the continent.
Their arrival poses a challenge for the few and fledgling European online trading companies – whose ambitions are for the moment limited to individual national markets, in contrast to the global strivings of their US competitors. But their presence has made it easier for US investors to take a stab at European equities.
All these factors have been a real fillip for European markets. Economists and analysts remain bullish yet cautious on European shares. Interest rates must be watched, they say – but increased growth and corporate profits could give the US markets some real competition this year.