E.U. Hatches a Plan to Lure Investors Back to Europe
America’s once highflying stock markets are stumbling, and their counterparts in Europe are faring much better. Shares in European companies have comfortably outperformed the S&P 500 in recent months, as President Trump’s trade war has prompted investors to revisit their assumptions. Officials in Brussels say that the rally could be even bigger.
The European Commission, the executive arm of the European Union, is set to introduce a proposal on Wednesday to tap trillions of euros parked in Europeans’ savings accounts as part of a strategy to incentivize investors to back Europe Inc.
The draft plan has a second objective: encourage consolidation among European asset managers, a sector long overshadowed by Wall Street. It is part of a larger vision to shake up the region’s byzantine capital markets, a long discussed effort that has taken on new urgency since Mr. Trump won re-election.
“It’s because of Trump, but also the need for more integration in so many sectors,” said Fabrizio Pagani, a partner at the investment bank Vitale and a former top economic adviser to the Italian government. “There is so much positive catch-up to do.”
Advisers to the commission are calling on member states to slash what they call “unnecessary” red tape to ease the consolidation of the continent’s army of asset managers, which are vastly outgunned by U.S. giants such as BlackRock, Vanguard and Fidelity.
They also want to see member states introduce tax breaks for investors and pension funds, especially those who put their money into European financial assets — not just stocks, but in bonds and venture funding for private companies. Another idea being floated is to create Europe-wide investment and savings plans to bolster retail investing in Europe.
The plan is also meant to address an issue that bugs many European officials: European retail and institutional investors put roughly 300 billion euros, or $328 billion, annually into stocks and other assets outside the European Union. “This is capital flight, and mostly to the U.S.,” Mr. Pagani said.
That deprives European companies of capital they could use to innovate and expand. At the same time, Europe is scrambling to raise vast sums to strengthen its economy — and, in a sudden new priority, rearm as Mr. Trump threatens to cut off military support.
Consider the global flight of capital to Nvidia. Late last year, the giant chipmaker at the center of the artificial intelligence boom saw its market capitalization soar above $3.6 trillion — surpassing the entirety of the Dax 40, Germany’s blue chip stock index.
Nvidia’s successful run has placed it in a group of high-performing stocks of other American tech giants called the Magnificent Seven, and it has made the company a top holding for some European pension funds. And the desire to cash in on the U.S. tech surge became a recurring discussion point across Europe late last year.
“An M&A banker could make the case for Nvidia buying Germany,” Jonathan Stubbs, an equity strategist at the German investment bank Berenberg, said in November.
The European Union’s plans to reverse that money flow involves the creation of a savings-and-investment union.Creating a true investment union faces major hurdles. Europe has 295 national trading venues and a hodgepodge of national regulators, investment rules and taxes. This measure falls short of creating a single market watchdog, equivalent to the U.S. Securities and Exchange Commission, that could create and enforce a common rule book.
Europe’s fragmented investment market is one reason that top European start-ups cite as why they go public in the United States instead. For example, in what’s expected to be one of the year’s hottest initial public offerings, the Stockholm-based lender Klarna will list on the New York Stock Exchange in the coming weeks.
