“How has this asset class done?” asked Rajesh Tanna, portfolio manager at J.P. Morgan Asset Management, referring to equities. Tanna was speaking at a presentation in Luxembourg on 25 June. Looking at the last 30 years (starting on 30 June 1995), he observed that “the biggest bond bull market in history” has returned 3.4% annually (Bloomberg global aggregate), whereas global equities (MSCI all country world index) returned 8.0% despite highly disruptive events such as the bursting of a tech bubble, a global financial crisis, a eurozone crisis and a pandemic.

European stocks: an entry point?

JPMAM calculates that the MSCI Europe has a discount of around 35% over the MSCI USA, based on a 12 month forward P/E ratio. “The discount of Europe is at a level not seen in the Eurozone crisis since the GFC,” claimed Tanna. He argued that it is not because the US is more weighted to technology. “You can go industry by industry and see the discount.”

The discount also applies on a stock-by-stock basis. Apart for the fact that one is listed in the US and supported by the strong domestic retail market and the other is listed in Denmark, he sees no fundamental reasons why Novo Nordisk would trade at a P/E of 36X against 54X for Eli Lilly, both producers of weight loss treatment, a subsector for which he estimates sales at $150bn (no timeframe provided). Your correspondent noted that Novo is listed in the US through an .

As “50% of the population in China is either overweight or obese,” Tanna saw the recent decision by Chinese authorities to approve Novo Nordisk’s Wegovy positively, making it the first such weight loss treatment to get regulatory approval in China. Given the current profit growth of around 35%, he thinks that the company can sustain a level of 30% despite the company guiding for 25%. He commented that the future looks bright as recent clinical trials have shown a 20% reduction in cardiovascular events.

Tanna thinks that a similar reasoning applies to the shipping company DHL (Deutsche Post), which, coupled with a dividend of 5% and a 3.5% share buyback, trades at a P/E of 12.3X against 17.6X for UPS. He argued that DHL has a much better business, greater exposure to Asia and is not exposed to the US trucking business which agreed a wage settlement of $250,000 for the drivers while facing increasing competition from Amazon logistics.

European stocks: the side effects of cheapness

JPMAM pointed to the shrinking of net issuance supply (“essentially IPOs less buybacks”), a technical development that is the result of low valuation. On one hand, it has pushed companies to refrain from having an in Europe and instead issue in the US, while cash rich companies have happily bought back their shares.

Tanna reported CEOs such as Ryanair’s as saying: “It’s our best investment right now to buy back our own stock.” He added: “less supply, reasonable demand, even if falling, you get a market going up.”

European banks pleasing their shareholders

“European banks will return €50bn in buybacks to shareholders 2024…. out of €1.2bn in market cap in total in the European banking index,” estimates Tanna. Anecdotally, he noted that ING has returned 45% of market cap over the last four years in buybacks while Unicredit gave back “high teens in terms of dividends and buybacks to shareholders.”

In addition, he estimated these banks will pay around 5% in dividends for a total capital return of more than 9% and “we think that will continue.” He observed that banks outperformed the S&P500 in the last three years and 2024 until Macron called snap parliamentary elections in France.