Technology companies in Europe could overtake the US tech giants in terms of share price returns from here on out, according to JP Morgan global market strategist Hugh Gimber.
The US technology sector has dominated global markets over the past decade, but as demand for consumer-led giants such as Netflix and Amazon fades, climate technology companies in Europe could take centre stage.
“I think this is a big area where Europe stands to benefit because when you look at the market composition, we've effectively had a 10-year period where big tech has been the dominant force,” Gimber said.
“We're probably now heading to an environment where climate tech is going to be a much more attractive prospect for many investors than the big tech giants that have done so well.
“When you look at the way the European market is put together, a shift from big tech to climate tech would work in the favour of Europe relative to the US.”
Countries around the globe are ramping up spending on renewable projects as they transition towards clean energy, which could put Europe – a market rich with climate technology companies – in prime position to benefit from this global demand.
As early adopters of clean energy, Fidelity European manager Marcel Stotzel agreed that the region is far more advanced than other markets in this regard.
Although he is bullish on European equities, he did confess that some hurdles still stand in the way of Europe if it wants a chance to compete with the US on technology.
“These industries have a natural advantage in that Europe has been caring about this kind of thing for much longer than the US,” he said.
“Renewable energy has a much longer heritage in Europe when you compared how long wind and solar farms have been there compared with anywhere in the world, so I broadly agree, but the main counterpoint from the US is the Inflation Reduction Act.”
The landmark bill passed in the US last year committed $500bn of investment towards clean energy infrastructure, creating a more lucrative environment for climate technology companies compared with Europe.
Stotzel added: “The US has thrown enormous amounts of money at this problem and we've already seen examples of some players moving from Europe to the US just to take advantage of these benefits.
“I think saying it has an advantage is fair as a base statement, but the risk for Europe now is that the US can cherry picks the best companies with these subsidies, shuffle them over to the US and suck out all the value that way.”
Though these advantages keep the US in the lead for now, Stotzel is confident that European regulators will come up with their own policy to counter the US and retain leading climate technology companies.
“Europe is not blind to this of course,” he said. “They will definitely come up with their own version of the Inflation Reduction Act – hopefully something with a better name.
“It will be harder because there are many member states in Europe that will have to agree on an action – plus the US is a bigger economy with more firepower to throw at it – but there are already a few proposals on the table so they will definitely come back with a counter.”
Stotzel does not have direct exposure to these climate technology companies because their low dividend yields do not fit with the Fidelity European trust’s objectives, but he has allocated towards the theme in different ways.
He has a 18.3% exposure to industrials companies, many of which should benefit from the growing demand for clean energy.
Competing legislation from the US may be a worry over the near term, but Stotzel said he is confident that an influx of institutional investment in future could boost world-leading climate technology companies in Europe to a strong position over the coming decades.
“I could hang my hat on the green transition doing well for the next 10 to 20 years, even though I can’t play it in a direct way,” he added.