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September 2007

The Case For European Equity

By: Rory Flynn

Despite the opportunities and benefits of investing in Europe, it always surprises me that even among sophisticated audiences such as institutional investors, I often encounter myths and misperceptions on the world’s largest trading bloc.

These include the impression that Europe is an expensive place to do business, that its labour market is costly and inflexible, and that its economy is somehow less dynamic than that of the United States.

Outlook For Investing

However, we believe that the outlook for investing in Europe has rarely been brighter. Consider the following facts and trends:

It continues a long-term trend of dividend growth that is one of Europe’s greatest attractions. Since 1973, dividends in Europe have grown annually by 8.7 per cent, compared to a 7.7 per cent global average and only 6.7 per cent over the same period in the U.S.

Yet some still argue that the European business climate alone merits a discount versus North America counterparts. But is this true?

Single Market

The European Union (EU) has been very effective in driving toward establishing a single market to go with its single currency. Deregulation by the EU over the past few years has brought revolutionary change to many sectors and created a level playing field where all companies now compete. This can be seen in industries such as telecommunications, retail, and auto manufacturing.

Perhaps the most striking illustration is the airline industry where new companies such as Easyjet and Ryanair have brought a level of competition and affordability that simply does not exist in any other major economic region. For example, at time of writing, I could have booked a flight on Ryanair from London to Frankfurt for only 20 British pounds.

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