Is now the right time to start investing in Europe for growth?
Here’s an overview of the current outlook and how global companies are preparing.
Is now the best time to start investing in Europe for growth? Some may say it’s a mixed bag, given Britain’s turmoil in departing the EU and the ongoing tensions surrounding trade wars between the U.S. and China. But other indicators, including the growing interest in the European Tech sector, are showing promising signs that now is the right time to strike.
A report from earlier this year showed that U.S. venture capitalists poured more than $5.3 billion into European companies. And in all of 2019, European startups have acquired more than $34.3 billion in total venture capital (a new record for Europe), with FinTech emerging as the top industry. Most notable about this record breaking funding is the support provided by mega rounds of $100 million or more, which sources say accounted for more than 40% of deals.
Europe’s ability to attract these mega rounds is one of the biggest shifts we’ve seen in European investments, particularly in the tech sector. Last year, tech accounted for about $24.8 billion in investments, and another $22.6 billion the year before that.
And despite the uncertainty encircling Brexit, politics, and trade, it’s clear that investing in Europe for growth can be a valuable venture for global opportunists. Let’s look at some specifics:
Unemployment has fallen to its lowest point in a decade. Europe continues to draw strength from nearly-zero interest rates, which has big benefits for consumers and businesses alike. The European Central Bank offered additional positivity as Christine Lagarde last week showed enthusiasm for sticking to the policy of her predecessor, with unchanged rates and recognising the stabilisation of the growth slowdown in the Eurozone.
Also worth mentioning is that European stock shares remain valuable, particularly when compared with other international markets. Excluding the UK, shares in Europe traded for around 17 times historic earnings.
Investors know that local economic signals can be worth their weight in gold, and Europe currently has a strong foundation on which global investors will want to build.
The Tech Movement Continues Gaining Steam
2019 has been a banner year for European Tech. Health tech firm Babylon raised more than $550 million from Middle Eastern backers in August, while U.K. food delivery app Deliveroo received $575 in bumper round funding in May.
Another, more local testament to Europe’s Tech movement, is the relocation of Switzerland’s technology hub to Paradeplatz. Trust Square is home to about 20 companies involved in bitcoin, cryptocurrency, the Internet of Things, artificial intelligence, and cybersecurity and all 20 will be moving en masse to Zurich’s most prestigious banking district. The hub believes its premium location in a frequently-travelled section of the city will help to embed trust from the public, enhance the brand image of European Fintech, and promote open dialogue.
But What About Brexit?
It’s hard to get around the intricacies that Brexit imposes on the health of the European economy. The EU stands to lose its second largest member, which will undoubtedly have an impact on trade and industry. Prime Minister Boris Johnson´s well versed motto of “Let´s get Brexit done” won him a UK election majority in a landslide victory on December 12 therefore, one expects Brexit is speedily approaching.
But investors can also see this as a valuable opportunity for investment growth. With the UK no longer part of the EU, investors may be able to take advantage of the low-value Euro to stretch their investments and establish critical long-term deals.
Investors should also note that despite the political uncertainty, Europe is still the home of several world-renowned brands and long-standing companies that have the track record and infrastructure to continue running successfully, regardless of the Brexit outcome.
According to AIC, “The average investment company in the Europe sector has returned 70% and 176% over five and ten years.” A column in London Loves Business also notes that “Companies in the European Smaller Companies sector have performed even better, generating returns of 85% and 195% over the same timeframes.”
Bottom Line: Europe Has Plenty to Offer Its Global Investors
Though growth has been sluggish in recent years, Europe remains an attractive market for global investors who take the time to do their homework. Total economic output equated to $18 trillion last year in 2018 and the future looks promising. For many industries, Europe is uncharted territory for investors, but this also means its potential is also without limits.
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