Index fund investors only talk about investing in the S&P 500 but they rarely talk about investing in index funds in other countries. That's because other countries have their indexes stagnate for decades. Europe's indexes stagnated for two decades. Japan's index hasn't seen new highs since the 1980s. Similar situation applies to indexes in Latin America, Africa, Australia, Canada, China and more. But lately, it looks like European equities are setting the stage to shine
The Stoxx 600, which represents the European economy from a broader perspective, is showing signs of trending upwards once again. This all happened despite the European economies nearly collapsing due to COVID-19, an energy crisis that started since Russia's invasion of Ukraine, large scale deindustrialization since the energy crisis, and industrial companies leaving the country to take advantage of the generous subsidies provided by the United States government.
There's immense support for the upward momentum of the Stoxx 600. France's stock market index is looking to continue higher. High demand for luxury goods, which has fueled LVMH higher, is mostly why the index has has better momentum.
And so is the UK's stock market, which has surprisingly remained resilient since Brexit.
But of course, most of the credit for the upward momentum of the Stoxx 600 can be attributable to the Nordic nations, like Denmark, Sweden, Norway, and Finland as well as other nations like Estonia, Latvia, and Lithuania. Basically, any country that doesn't have big government and is more accommodative of the private sector.
The main catalyst for European equities is austerity. The EU is looking to impose fiscal spending cuts of around €100 billion
, which will help lead to the eventual downsizing of the government. At the same time, the deindustrialization of the continent has reduced the power
that labor unions have on the government, further leading to a more accommodative environment for businesses. I believe that Europe will be fast in making itself accommodative to businesses. The continent will welcome more business from China and other nations and make it easier for startups to operate there. This is probably what investors buying European equities right now are predicting and I wouldn't be surprise if that becomes the case in 3 months.