Just as some people cannot leave their work alone when they go on holiday, others cannot stop thinking about their investments. Always eyeing up a new idea, even when markets are in turmoil as they are right now.
Sad, perhaps. But we all know such people — indeed, dear reader, you may be one of them. So for the benefit of savers who can’t take a break, FT Money has taken soundings from FT correspondents on the stock markets in European summer tourist destinations. If you are bored with the beach, sick of the sights or just tired of relaxing, we have pulled together for you a bagful of financial titbits from France, Spain, Portugal, Italy and Greece.
As elsewhere in the world, European markets are generally down this year, with the Euro Stoxx 600 index falling 14 per cent. Fears of inflation and rising interest rates are taking their toll, with the European Central Bank this week lifting its key rate for the first time in a decade, to 0.5 per cent. The Ukraine war has had a particularly severe impact on the continent, with many EU members dependent on Russian oil and gas.
But a sell-off can be an opportunity. There are world-class companies in our five countries — ranging from French and Italian luxury goods makers to Spanish green energy companies and Portugal’s innovative paper producers. Some locally-focused companies are also doing well, such as Greece’s construction groups, enjoying a long-awaited recovery.
For UK investors a holiday switch might be timely: The London market has stood up well this year — with the FTSE 100 down just 3 per cent — thanks largely to the strength of the energy sector. Also, while the pound has been weak against the US dollar, the euro has been even feebler, falling about 2 per cent against sterling.
It might be the moment to take profits at home and snap up a holiday bargain, one that might be more rewarding than that case of wonderful local wine that never quite tastes the same when you get home.
Visitors returning to Paris for the first time since the pandemic began will find the city endearingly familiar: the boulevards, the terrace cafés and bars, and the crowds of tourists are the same as they were. But, writes Akila Quinio, lynx-eyed investment-minded holidaymakers might spot a new name on the CAC40, France’s main stock market index.
Eurofins Scientific entered the “top 40” last September, due to Covid-19, after its market value soared to over €23.5bn. Its name may not ring a bell, but many Britons have used its home-testing kits. The French-founded laboratory company, with nearly 60,000 staff and now based in Luxembourg, has performed more than 40mn Covid PCR tests. Net profits jumped 45 per cent last year to €783mn on a 24 per cent rise in revenues to €6.7bn.
What sets Eurofins apart from other “pandemic winners” may be that demand for its services is likely to remain strong. The group has sizeable arms in food and environmental testing and is growing genetics testing capacity. “While there are cheaper stocks that investors could own, we think the long-term structural growth opportunity at Eurofins, combined with the business’s relative defensiveness, continue to make it an attractive share to own,” say Berenberg analysts.
Eurofins trades on a historic price/earnings ratio of 22, well above the CAC40 average of around 16.5. That might still look expensive, but at around €78 the stock is down nearly 30 per cent on the year, so it is a lot less costly than it was.
Meanwhile, defence is attracting interest because of the Ukraine conflict. Speaking at a recent trade show, president Emmanuel Macron said the country had “entered a war economy” and called for increases in European defence production.
This is good news for arms makers. Despite potential political roadblocks for Macron in securing military budget rises, JPMorgan aerospace defence analyst David Perry is bullish. He says there is “clear evidence” that global military spending will increase over the next decade — benefiting European defence companies.
JPMorgan’s top European pick among large-cap defence stocks is Thales. With its “rock solid balance sheet” and “well-covered dividend”, it made around 60 per cent of its €1.4bn net profit from defence last year.
Finally, Paris wouldn’t be Paris without luxury, and that applies also to the stock market. Bernard Arnault’s conglomerate LVMH “is a fantastic company at a reasonable valuation” says Ludovic Labal, portfolio manager at Eric Sturdza Investments. Leather goods manufacturer Hermes also has a “big valuation premium” given its “unique positioning” in the luxury market, he says. This year’s stock sell-off has created decent buying opportunities for shares which, like the handbags, are rarely cheap.
With its high dependence on Russian gas, Italy’s markets have been hit particularly hard by the Ukraine war shock, soaring energy prices, rising inflation and slowing economic growth, writes Silvia Sciorilli Borrelli.
The collapse of prime minister Mario Draghi’s government on Thursday has only increased the financial strains, with Italian bond prices dropping sharply on the day. The yield on Italy’s 10-year government bond jumped 0.24 percentage points on the day to 3.6 per cent, taking the gap between Italian and German benchmark 10-year yields — a key risk gauge — to 2.3 percentage points, the widest for months. Italian equities fell by 2 per cent, extending the decline this year to 23 per cent, far worse than the European average.
It certainly looks like a time for tourist investors to stay clear. Mediobanca’s co-head of equity research Javier Suàrez says the political crisis comes at the worst possible time: “A further increase in borrowing costs for Italian firms and households would aggravate an already deteriorating macro-outlook, a consequence of soaring energy prices, the Ukrainian conflict and the resurfacing of the pandemic.”
But despite the turbulence, some analysts still believe there are good opportunities. It would not be the first time that Italian companies were able to overcome the country’s persistent difficulties — and make money for shareholders.
Macroeconomic tensions should prompt “a cautious stance” on Italian banks, cyclicals, mid-cap companies and highly indebted companies, according to Mediobanca’s Suàrez. But “sectors exposed to underlying long-term growth patterns such as energy, telecoms, transport infrastructure, companies exposed to the ongoing digital transformation, or sectors, such as luxury goods, that provide protection to persistent high inflation, should outperform”.
As in France, designer fashion should prosper — the world’s rich have pulled through the pandemic well so far and have money to spend. Luxury house Moncler is one to watch.
Italian high-tech also has promise. Investors could consider energy and fibre optic cables manufacturer Prysmian, wireless infrastructure operator Inwit, and Technoprobe, the semiconductor maker. Analysts say their technological advantages should help them weather the economic storm.
Relaxing poolside in Spain, a visitor’s thoughts can easily turn to purchasing a permanent home in the country, writes Peter Wise. For the investment-minded holiday-maker, could Spanish residential property be of interest?
The answer from stock market analysts is a resounding “sí”. “Real estate development has grabbed attention over the past three years and companies have delivered,” says Pedro Garnica, a partner at Alantra Equities.
Fifteen years after Spain’s housing bubble burst, the sector is finally in recovery. Buyers making post-pandemic relocations and seeking less stressful lives are helping to lift the market — both foreigners, and Spaniards moving from big cities.
“There has been a complete change in the sector,” says Garnica. “Covid-19 has changed what people are looking for and developers are meeting their demands. [Development] companies have also become less leveraged and more professional.”
José Ramón Iturriaga, fund manager at Abante Asesores, says that, for British investors, comparisons with the UK housing market are all favourable, as properties are cheaper in Spain and mortgages are more affordable, even if the European Central Bank is tightening policy.
Neinor Homes and Aedas Homes — both listed in IPOs in 2017 — are two housebuilders frequently cited by Spanish investment advisers as companies likely to benefit from the upturn.
The broader market has been stable, despite the global uncertainties. The Ibex 35, the main index of the Bolsa de Madrid, Spain’s principal stock exchange, has dropped only around 8.5 per cent this year, outperforming most European indices.
Meanwhile, the same climatic conditions that attract tourists are supporting a growing renewables industry, particularly solar. The EU’s new energy programme to cut reliance on Russian energy and expand wind and solar power, will help companies overcome red-tape barriers and enable the sector to make a “leap forward” in adding capacity, says Garnica.
The big diversified players in the sector are Iberdrola and Acciona. More domestically-focused companies, such as Solaria and Grenergy, are also branching out internationally, potentially boosting their investment appeal.
As elsewhere, the Ukraine crisis makes defence worth a look. Ignacio de la Torre, chief economist at Arcano Partners, highlights Spain’s commitment to double military spending from 1 to 2 per cent of GDP by 2030. Indra Sistemas, which develops software for the pan-European Eurofighter project, could profit.
As elsewhere in Europe, wildfires have destroyed swaths of Portugal’s extensive forests this summer in a heatwave aggravated by climate change, writes Peter Wise. The destruction only intensifies the pressure to go green — not least in the country’s substantial pulp and paper sector.
“The industry is exploring new technologies designed to replace plastics and other oil derivatives with plant-based fibres, textiles and paper products, as well as biofuels derived from forestry waste,” says João Queiroz, head of trading at Banco Carregosa.
Altri, for example, one of Portugal’s two dominant papermakers, is investing in using pulped wood to produce fabric yarn, creating alternatives to petroleum-based fibres.
Navigator, the sector’s other big player, is also focusing on alternatives to fossil-based fuels, chemicals and plastics. “The green transformation component of companies like these is likely to become a key value in the future,” said Queiroz. Both groups’ shares are up this year — Altri by 47 per cent and Navigator by 19 per cent.
A smaller player is Greenvolt, listed in a €150mn IPO last year. It links forestry and power by producing renewable energy from woodland waste. Ricardo Seabra of Banco de Investimento Global sees the company as one of Portugal’s “most interesting stories”. Altri owns 38 per cent.
The PSI, Lisbon’s main share index, stands out in Europe, having gained about 4 per cent since January. The smallish market is dominated by energy utilities, which make up almost two-thirds of its total capitalisation. Millennium BCP is the only large bank listed, after other lenders either collapsed or were taken over by Spanish competitors after the financial crises of a decade ago.
A narrow focus might be a plus in today’s conditions. “The fact that there is not much exposure to the technology sector means the index has not suffered the volatility we have seen in Europe and the US,” says Henrique Tomé, an analyst with XTB, a broker. “Its position as an outlier this year should capture the attention of new investors.”
Tourists in Greece might be surprised by the number of cranes, bulldozers, and trucks working on summer villas, writes Eleni Varvitsioti. As in Spain, they might be tempted to buy property — and contribute to a record flow of foreign capital targeting real estate.
Total inward foreign direct investment soared 72 per cent last year to €4.8bn, the highest level in many years, according to Enterprise Greece, the official investment agency.
Athens analysts expect construction activity to more than double in the next few years, topping €18bn in 2025, up from €7.6bn in 2020. A likely beneficiary is Lamda, the leading real estate developer, currently trading well below net asset value.
Visitors might prefer to go for an ESG investment: Greece, a country filled with sunshine and strong winds, offers many opportunities in renewable energy. Helped by the EU recovery fund, the country aims to double installed capacity in renewable energy by 2030. Terna Energy is a stock worth considering: it has the largest installed renewables capacity and a huge project pipeline.
The Athens bourse is only 9 per cent off this year — making it a better performer than the European average. But Greek shares have been fairly flat since 2014 and are still far off the peaks scaled before the 2008 global financial crisis and the Greek eurozone crisis, when the country stood on the verge of financial collapse. Those shocks also robbed Greece of many investable stocks, with 100 companies leaving the exchange. So investors now face limited choices.
Still, a strong deal flow is fuelling optimism. Manos Hatzidakis, head of research in Beta Securities, says capital increases at two major banks, and the Public Power Corporation — backed mainly by foreign investors — have created a “protective mound” around the market.
Meanwhile, away from the listed market, Mondelez, a global snacks giant, has acquired Chipita, a local producer for about $2bn, in one of Greece’s biggest deals. And US bank JPMorgan has bought 49 per cent of Athens- based payment fintech Viva Wallet for over $1bn.
“That is a good sign for listed stocks as well,” says Hatzidakis. “Especially when the energy crisis will be over, foreign investors will be more willing to take a closer look at Greek companies.”
Reporting team: Akila Quinio, Peter Wise, Silvia Sciorilli Borrelli, Eleni Varvitsioti and Stefan Wagstyl
Founded in 864, La Monnaie de Paris (Paris Mint) is one of the world’s oldest companies and still stamps euro coins. Its summer exhibition features more than 200 traditional currencies, from Polynesian feathers to Zairean velvet.
But the Monnaie de Paris’s crown jewel might just be its restaurant. The Guy Savoy has three Michelin stars and a price to match: €585 for the set menu. In characteristically French fashion, the restaurant takes an August break.
Though banks may not be much of an investment opportunity now, one Italian lender is worth a visit — Monte dei Paschi, the world’s oldest bank. While Rocca Salimbeni, the bank’s palatial home in Siena cannot be accessed by the public, the magnificent piazza in which it stands most certainly can, as can the city’s pebbled medieval centre. In mid-August the city holds the famous Palio horse race.
Madrid’s impressive neoclassical stock exchange building sits only a short walk from the Prado Museum. Weekly guided tours must be booked in advance by emailing: firstname.lastname@example.org. Closed during the pandemic, the exchange will reopen for visits from September 1. bolsamadrid.es/ing/BMadrid/Palacio/Visita.aspx
The Bank of Portugal’s Money Museum (Museu do Dinheiro), in Lisbon, offers a fascinating modern exhibition on the history of filthy lucre.
In Athens, a great place to cool down from the heat is the numismatic museum. Have an iced coffee in its garden and stroll around the halls and explore a collection dating back to the fourth century. nummus.gr/en/