• European stocks could offer buying opportunities for Aussies in 2023
  • How to buy European stocks
  • Tax implications of buying Euro stocks

 

It’s been a volatile year in European politics and markets.

High inflation, the war in Ukraine, and tightening of monetary policies by the BoE and ECB are the main reasons behind the decline in European stock markets in 2022.

The broad-based Stoxx Europe 600 index is down 10%, while the German Dax and French CAC 40 also dropped similar percentage points.

Price-earnings multiples have also declined substantially. In 2021, European equities were trading at 16.2x expected earnings, but that has dropped to 10.9x in 2022.

In 2023, Morningstar’s analysts said they expect inflation to remain the elephant in the room for Europe.

“As long as inflation numbers don’t tick down, the perception from market participants will be that central banks haven’t finished tightening, and that a more severe recession than expected could be in the offing,” says Michael Field, Europe market strategist at Morningstar.

“If inflation stays high, the war in Ukraine continues and the uncertain political situation in China continue, earnings declines might accelerate.”

But opportunities abound

Energy market dynamics for Europe in 2023 will also be as challenging as it has been in 2022.

Natural gas storage in Europe is likely to be completely depleted by spring, while little new import capacity will yet be available.

“This would reverberate through both equity and bond markets,” says Field.

“In our bear case, earnings would decline by 20% and valuation would stay below historical average at 12x.

“In this scenario, European stock market have a further 23% decline potential.”

But Field argues that opportunities abound for stock pickers at current valuation levels.

“Consumer cyclicals, utilities, healthcare and telecommunication services have a number of companies that can take advantage of their wide moat and stable yields, and be attractive to patient investors,” he said.

 

How do I buy European stocks from Australia?

You can buy a number of European-based companies on the ASX, for example: Virgin Money UK (ASX:VUK), Swiss-based Amcor (ASX:AMC), and Paris-based Unibail-Rodamco-Westfield (ASX:URW).

But if you want direct access to European exchanges, you’ll need to sign up with a broker that has access to that specific exchange.

Generally speaking, Western European exchanges offer the same high level of liquidity as American stocks, so buying them from Australia is pretty straight forward.

Now read: The pros and cons of owning US stocks, and how to go about buying them

Most of the major brokers in Australia offer investors access to the following European stock markets :

* London Stock Exchange (LSE)
* EURONEXT Paris (PAR)
* EURONEXT Brussels (BRU)
* EURONEXT Amsterdam (AMS)
* SIX Swiss Exchange
* Frankfurt Stock Exchange (FWB)
* Bolsa de Madrid (Spain)
* Nasdaq Stockholm (Sweden)
* Nasdaq Copenhagen (Denmark)

Commsec, Nabtrade, Westpac and ANZ offer trading access to most of these exchanges. So do major brokers like Interactive Brokers, IG, CMC Markets, and eToro.

These brokerages mostly charge tiered commission fees – for example Interactive charges 0.05% on UK stocks if the monthly trading value is less than GBP 40m, and 0.015% if it’s above GBP 400m.

When choosing a broker, you should also consider factors other than fees.

Ease of use, the ability to access other global markets, the quality of research provided, and the availability of customer support are also important considerations.

Some platforms also provide education resources, but these might be charged at an additional cost.

Tax implications for Aussies

Australian tax residents are subject to tax on worldwide income.

This includes investment income (dividends) and capital gains from overseas investments.

In order to prevent double taxation, Australia has entered into “tax treaties” with more than 40 jurisdictions, including the UK, France and a recent one with Switzerland.

International investments are complex, so you should consult with you accountant or read more about it on the ATO website.

 

Buying European-focused ETFs on the ASX

You can also get exposure to major European shares by investing in one of European-themed funds on the ASX. In fact, this is probably the easiest and cheapest way to get that exposure.

 

iShares Europe ETF AUD (ASX:IEU)

This Blackrock fund aims to replicate the performance of the S&P Europe 350 Index, which covers large cap equities of the 16 major developed European markets.

Around a quarter of the portfolio is invested in the UK, 18% in France, 15% in Switzerland and 12% in Germany (as of Dec 13th).

Top holdings include Nestle, Shell, Astrazeneca, Unilever and LVMH.

 

Vanguard FTSE Europe Shares ETF (ASX:VEQ)

The fund aims to track the return of the FTSE Developed Europe All Cap Index (with net dividends reinvested), in Australian dollars.

Around 25% are invested in the UK, 16% in France, 15% in Switzerland, and 12% in Germany.

Top 10 holding include Nestle, SAP, TotalEnergies, and Novo Nordisk (as of Dec 13th).

 

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

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