Stock indexes in the US have started a record-breaking streak again. While the Nasdaq 100 S&P 500 index has set sail for new highs, the Dow Jones industrial index has fallen behind again and has yet to break a record. While the Nasdaq 100 index has risen by more than 36% since the bottom in early April, the Stoxx 600 index, which represents Europe as a whole, has risen by only 18% as of today. Yet everyone was saying that European stocks would do better.
In fact, when you evaluate it relatively, European stocks have actually performed better than their US counterparts. First, from the bottom the parity saw around 1.02 in January 2025 to the 1.1750 region where it is today, there has already been a 15% increase in the value of European investments due to the exchange rate difference. And it seems that this story will continue. There will be a pullback in the euro-dollar parity in the next 5-10 business days, but the main direction here is still upwards and the preferences of US investors have already started to shift from the US to Europe.
At this point, let me explain what is happening to you more strikingly with numbers; even if an investor who has invested in the S&P 500 index since the beginning of 2025 thinks that he has made money in dollars, in fact his 100 euros have fallen to 92.7 euros. The investment of the same investor in the Stoxx 600 was €121.20. You should evaluate the difference.
In fact, I read that not only US investors but also Japanese funds have put serious amounts of money into European stocks. But according to reports, this fund movement is not flowing from the US to Europe. In the big sale in German bonds in a few days at the end of February, no one, including me, could lift a finger and had to tolerate big losses. Although I also faced annoying losses, I managed to lower my average by buying from below and then I came out without a loss. It turns out I was not alone and Japanese corporates also sold the goods in the purchase made in the bond and transferred that money to cash and invested that money in European stocks. The amounts in question are billions of euros. Therefore, there is really big money waiting to make a profit there right now.
As for the valuation in European stock markets, when we compare the S&P 500 discretionary consumption index, which somehow includes technology giants such as Tesla and Amazon, with the European discretionary consumption index, there is a big difference between the two sides of the ocean and European stocks are extremely cheap compared to the expected price/earnings ratio. This difference is especially noticeable in healthcare sector stocks and discretionary consumption sector stocks.
There is more, I noticed in a report that if we continue in this way, the US will only be following in technological growth, which it has led until today, by 2026. In fact, a bit more ambitiously, the report predicts that Asia is the leading company in terms of profitability growth in semiconductors, metaverse, robotic technology applications and artificial intelligence, followed by Europe and finally the US.
To be honest, it is not difficult to understand Asia's situation. When you look at the technological devices that China has offered for retail use in the last 7 years, you see that it has caught up with the US's Tesla and Apple in various aspects. In addition, there are many fronts where American brands compete, such as Korea's Samsung and LG, and the competitors are very, very strong. But I have not yet been able to establish Europe's place here.
At this stage, let me explain the situation with another example; While the Bloomberg Modern Global Defense Index is 40% up since the beginning of the year (despite the wars), the European Defense Index is 76% up. US companies, which make up 65% of the global benchmark, are less than 20% higher, and guess who is intimately involved in everything from semiconductors to artificial intelligence and is involved in every war, even if only a little bit?
