Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
On July 21, EU leaders have reached a historic agreement to increase its budget to record-breaking €1.82 trillion. Spain’s Prime Minister even compared it to Marshall Plan, as it includes a €750 billion recovery fund for EU nations worst hit by the pandemic. For US investors, this new level of European fiscal integration and solidarity calls for revisiting European equities as a preferable alternative to US equities.
Will EU Equities Take Center Stage in the US?
For a long time, both Americans and Europeans were highly suspect if the European project can truly succeed, at least in terms of rivaling America as an economic powerhouse. Made up of many nations, languages, economies, traditions, and even currencies, the EU is highly lopsided and complex. Germany maintains its status as the economic engine of the Eurozone, while other nations more or less linger on the periphery.
The intrinsic contradictions of the EU project manifested acutely from 2010 to 2012, during the European sovereign debt crisis. You can watch this excellent video from Bloomberg Business to grasp all the intricacies of that particular financial crisis.
For these reasons, European equities rarely offered an appealing alternative to U.S. equities. After all, the U.S. dominates the global equities market, comprising nearly 56% of the global equities share.
Europe holds only a fraction of it — less than 3%. However, recently, the USD is weakening to Euro, and will likely continue to weaken. As a result, the top forex trading apps have seen an uptick in use.
Likewise, after the economic realignment in the wake of the COVID-19 pandemic, it’s time to reassess European equities as a good alternative to U.S. equities. This becomes clear when the following reasons are taken into consideration:
- Overall, Europe handled the coronavirus better than the U.S., as the recent extension of the EU ban on American travelers demonstrates. Therefore, it will take longer for the US to leave the crisis behind and enter a period of recovery.
- Both the EU and the US injected their economies with stimulus packages that must be paid. However, the nature of the US stimulus packages is more of a support designed to prevent the house of cards from totally collapsing. European stimulus is oriented into spurring growth.
- European equities are cheaper than U.S. equities.
- Europe has a more developed FinTech infrastructure in the form of security tokens.
- The US is worsening its relations with China at a rapid pace.
The United States enjoyed its status as a haven of financial safety, due to its military might, comparatively low taxes, and a strong dollar. These factors drove U.S. equities to outperform EU equities for quite a while.
EU Moves On from a Better Starting Point
The American inability to coherently respond to the pandemic, its debt-based economy, alongside prolonged social unrest and extreme political polarization, lend credence to the weakening of the dollar in the coming decade.
Moreover, as the United States’ racial makeup turns from 84% white in 1965 to a projected 47% White in 2050, more stressors will likely be unleashed into the bloodline of the nation, judging by current tensions alone.
With that said, one should be aware to not increase tax exposure unless you want to end up with a massive tax bill on capital gains. For this reason, the best way to take advantage of cheaper European equities is to achieve balance.
To aid you in this endeavor, here is a quick overview of the top stock trading apps currently on the market, freshly updated.
Do you believe the US dollar is too high, and will inevitably decrease in value? If so, equities outside the United States do not pose a significant risk. Let us know your thoughts in the comments below.