European equities should offer better returns than U.S. ones on average over the next 10 to 15 years, according to J.P. Morgan.
That’s down to an overvalued dollar as well as cheaper starting valuations and higher dividends elsewhere, says John Bilton, head of Global Multi-Asset Strategy at J.P. Morgan Asset Management. U.S. stocks won’t stop performing, but the rest of the world is due to play catch up.
In fact, U.S. equities are coming off their largest period of outperformance since at least 1971. The U.S. beat the rest of the world by 277% over 14 years. That was until last year, when the U.S. market crumbled in the face of faster inflation and rising interest rates.
“We’re not advocating selling the U.S. to go outside,” Bilton told Barron’s. “We’re saying think about adding to the core. For dollar-based investors, a return boost is currently on the table by looking overseas.”
The Euro STOXX 50 has gained 14% over the past year. That compares with 10% for the S&P 500 and 4.4% for the Dow Jones Industrial Average.
In its latest Long Term Capital Markets Assumptions report, J.P. Morgan said that equities in the euro area could return 8% annually over the next 10-15 years on average. It sees returns in Japan at 7.6% and, in the U.K., 6.9%. The U.S., by comparison, is only expected to return 5.3% on average.
Different types of stocks may do better in different regions. For instance, it’s no surprise that for technology stocks, the U.S. is the place to be. But defensive stocks, such as consumer staples, healthcare and utilities , that provide solid dividends regardless of the state of the wider economy may be more likely to be found outside the US.
Write to Brian Swint at brian.swint@barrons.com
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