USA outperformed Europe

 

Stock market records are a good thing. They lift the spirits because they make shareholders and companies happy. However, stock market records also tempt people not to look too closely. Who wants to spoil someone else's champagne mood when things are obviously going really well? Even though the DAX has set one record after another in recent days, that doesn't change one thing - Europe is losing touch with America permanently. The current highs obscure a long-term development that is striking when expressed in numbers: from the beginning of 2009 to today, the American stock market barometer S&P500 has gained around 470 percent in value. In the same period, the European stock market index Euro Stoxx 50, which tracks the most important stocks in the eurozone, has gained just 100 percent in value. A discrepancy that is also confirmed when you look at other European stock market barometers that have more members than the Euro Stoxx 50 with its 50 companies. So America is far ahead of Europe on the stock market.

But it is not just a coincidence or a quirk of fate that large technology companies such as Apple, Amazon & Co. were founded in the United States and are responsible for a large part of the American stock market rally. No, there are concrete reasons for Europe's lagging behind. And if something does not happen soon, there is a risk that the gap will become even wider. In the worst case scenario, the continent could remain permanently behind on the stock market for the next 10 years.

Of course, that doesn't have to be the case.

Measured by the intellectual capital that we have in Europe, European companies are underrepresented on the financial markets. Yet Europe has proven what it can do throughout its history. After all, the industrial revolution began here. At first glance, it seems strange to look back so far, but we can learn something from the old days. Back then, there was a fundamental willingness to take risks and dare something. In many cases, that is no longer the case today. In Germany, the continent's most important capital market, there are many companies that can boast of having survived almost everything - even two world wars - in view of their impressive history. However, many managers primarily do not want to make mistakes. They would rather manage than have the courage to make real business decisions.

These developments show that Germany may be struggling with the courage to make changes, which was not so necessary in this country in recent decades. For a long time, the German industry, spoiled by success, and especially the car companies, were able to limit themselves to simply making their products a little better every year using all the means of engineering. That is enough to be successful. Revolutionary innovations such as Apple's iPhone, Google's search engine or NVIDIA's computer chips inevitably come out of this rather rarely. Now one could hope that the change in thinking (“mindset”, as the Americans would say) will come at the latest when the situation is still bad enough. Unfortunately, there are also structural reasons that make it difficult for Europe to really catch up. Because compared to the United States, Europe not only lacks innovative tech companies, but also an institution that is at least as important - a powerful financial sector. If you exclude the British, who have left the continent to itself since leaving the European Union, Europe's banks are far inferior to American ones. This is reflected in the stock market values, which speak for themselves. Deutsche Bank, for example, is currently valued at just under €26 billion on the stock market. Perhaps the most important American bank, JP Morgan, on the other hand, is valued at more than $540 billion. You don't have to convert the dollar amount to euro to see how serious this difference is.

But it was also due to the circumstances that America was able to significantly increase its lead in this area in the 1910s. When the financial crisis hit the world in 2008, the USA supported its banks and invested enormous sums. Europe tried something similar, but was unable to achieve anything comparable for a fairly obvious reason: while in America one government could decide on the measures, in Europe many governments always had to agree. The special constellation of the eurozone - a common currency, no common government - was also what weakened Europe's banks in the years that followed. The continent and its financial institutions learned over the years that America was spared the sovereign debt crisis. But even in times of rising interest rates, which are now bringing many banks profitable business again, Europe knows how to put a strain on its financial sector.

The British business newspaper "Financial Times" recently listed which countries have recently introduced various types of new bank taxes. These include Italy, Spain, Hungary, the Czech Republic and Lithuania. Now she has been asked: why should we go easy on the banks? Special consideration may not be appropriate, but deliberate weakening is certainly not appropriate either. The example of the United States shows once again what flourishing banking can contribute to: if banks are solid and have good prospects for the future, this enables them to grant more credit, which in turn helps the economy. The more the economy grows, the more important other capital market innovations become in order to continue to finance this growth.

In the USA, for example, it is much easier to invest pension funds, including in start-ups. Young, up-and-coming companies receive urgently needed capital in this way and investors receive risky but potentially lucrative return opportunities. The example does not have to be copied exactly. But all the calls by many European bank managers for the so-called "capital market union" ultimately have the background that intelligent financing would be much easier to implement on a single European market. Despite assurances from European financial policy, the project has been on hold for years. But where is the hope? For example, Europe is ahead of the USA in the field of renewable energy and sustainability - to put it bluntly: that innovation does not have to be an iPhone. For some time now, an acronym invented by the investment bank Goldman Sachs has been doing the rounds among investment professionals. Under the name "Granolas", it presents European stock corporations that are taking on the US technology group on the stock exchange. These include the pharmaceutical companies Glaxo Smith Kline and Roche, the chip manufacturer ASML, the food group Nestlé, the pharmaceutical companies Novartis and Novo Nordisk, the consumer goods manufacturers L'Oreal and LVMH, the vaccine producer AstraZeneca, as well as the pharmaceutical companies Sanofi and the software group SAP. If you go through the names, you will notice the flaw pretty quickly: many of the companies come from Great Britain or Switzerland. Just five companies actually come from the eurozone. The list of European hopefuls remains frighteningly short.