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Investment strategy
February 19, 2021
3 mins

Europe is benefitting from Asia’s recovery

February 19, 2021
3 mins
Shan Gnanendran
EMEA Investment Strategist
China, Shangha, Pudong, Silhouette of man with kite
SUMMARY

Asia economic rebound is helpful for Europe growth too. And we expect European equities in firms with Asian business exposure to keep outperforming.


  • Historical data has shown Europe has a high dependency on both Chinese and broader Asian trade activity. Rebounding Asian import demand will be supportive for European growth in 2021, with exports making the largest contribution to overall GDP in the Euro area.  
  • European companies with high revenue exposure to both China and broader Asia have outperformed. Over a 5-year period, exposed companies are up 154% versus China up 116% and Asia up 89%. While performance has been strong, this has been distorted by semiconductors, materials and consumer durables which represent 45% of the basket (average performance within these sectors are 390%, 293% and 162% respectively). Removing these three industry groups would have resulted in a more modest 5-year performance of 59%. (*) 
  • While many companies have seen strong performance, we believe plenty of opportunities still exist at the single-stock level. This is supported by our positive outlook on the “Rise of Asia” and strong earnings - these companies show average consensus forward-looking earning growth rates of 12.1% versus Europe at 6.5%. As well as playing our positive European equity view, it can also provide a way of gaining Asian exposure through developed markets. 
(*) Basket refers to Eurostoxx 600 companies which have at least 15% China revenue exposure, or at least 30% Asian revenue exposure. Sector performance refers to basket constituents only.
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