THIS IS AN ADVERTISING FEATURE

---

Unlocking Structural Growth Opportunities in Europe

It has been a good period for European equity markets, despite ongoing volatility. Stefan Gries, manager of the BlackRock Greater Europe Investment Trust, discusses the region’s prospects for the remainder of 2023. 

Against expectations, European stock markets have outpaced their international peers since the start of the year[1]. It marks a significant change in investor confidence from 2022, when Europe appeared to be facing a potential energy crisis, slumping consumer and economic confidence and rising inflation.

Many of the 2022 challenges have started to fade.  Both macroeconomic data as well as fundamental data have surprised with their strength: the region has side-stepped an energy crisis, leading to lower Eurozone inflation numbers. At the same time employment has remained robust, and many European companies are expected to benefit from China exiting its Zero Covid policy.

While economic data remains mixed, with first quarter GDP growth for the Eurozone of just 0.1%,² the consumer has shown better resilience than expected, even with higher energy and food costs weighing on household spending. Importantly we believe the majority of rate hikes are in the past.

Earnings strength

While this is encouraging, on the BlackRock Greater Europe Investment Trust, we have never believed that a strong Eurozone economy is necessary for stock market progress. Many of Europe’s largest companies draw their revenues from across the globe. The luxury goods sector, for example, has been a significant beneficiary of China’s reopening.3[2]Plus, those companies geared to structural growth trends – digitisation, green spending - can transcend economic weakness.

As a result, the bottom-up picture for the corporate sector remains robust. Earnings haven’t been nearly as bad as expected, with many companies delivering stronger earnings in their recent updates, defying the market’s gloomy expectations. Corporates have adapted to higher input costs and overcome many of their challenges much better and more quickly than anticipated. Overall, there has been a broad-based strength in earnings with upgrades coming through across different areas of the market and across different sectors.

Low expectations

The region has also benefited from low expectations. Market valuations suggested investors believed a recession was imminent and that companies would deliver little or no earnings growth. In particular, markets had been tentatively predicting an energy crisis, with the resulting impact on manufacturing activity. The energy crisis did not materialise, as policymakers and companies scrambled to find other sources of energy and a mild winter reduced demand.^4[3]

The financial system has also been resilient. Despite the Credit Suisse debacle, European banks have generally not seen a similar credit crunch to that experienced in the US regional banking sector. There have been assurances from central bankers and regulators on the sector’s financial health, helping to restore some confidence. This has supported lending in the real economy.

Long term lens

However, while these factors have revived European markets in the short-term, we believe investors need to align themselves with long-term structural growth themes to sidestep any economic uncertainty in the year ahead. European economies have yet to digest the full impact of higher interest rates, and inflation is not yet back in the box. As investors, we need to find companies that can thrive in all market conditions.

Our portfolio focuses on a number of key areas. The first is green spending, which incorporates companies involved in digitialisation, electrification and decarbonisation. This has been a major long-term theme for the trust, and has been turbo-charged by initiatives such as RePower EU, the Green Deal Industrial Plan (the EU’s response to US Inflation Reduction Act).  

We are also looking at companies that could be beneficiaries of the energy price decline. Companies are seeing falling pressure on costs, while consumers are also likely to benefit from lower energy bills. This may prompt some improvement in consumer spending. This is balanced, to some extent, by select holdings in European banks, which are beneficiaries of higher rates.

A resurgent China, newly opened after the lifting of the zero Covid policy, is also providing a boost for certain European companies. We would highlight luxury goods companies, such as Hermes and LVMH, which have also benefited from strength in European and Japanese tourism. Semiconductors may also benefit from the revival in China as the country’s electronics and auto industries see activity levels rise.

While there remain a number of unknowns from an economic perspective, corporate balance sheets are in decent shape, particularly compared to previous downturns. Many companies in Europe have spent the last decade reducing debt and are much less vulnerable than during the Global Financial Crisis. Equally, long-term structural trends and large amounts of fiscal spending via the Recovery fund, Green Deal and the REPowerEU plan in Europe can drive demand in specific sectors for years to come. This is where we are hunting for opportunities.

For more information on how to access opportunities presented by European equities, please visit www.blackrock.com/uk/brge

Risk Warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Trust-specific risks

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Currency Risk: The Fund invests in other currencies. Changes in exchange rates will therefore affect the value of the investment.

Emerging Markets: Emerging markets are generally more sensitive to economic and political conditions than developed markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund.

Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Liquidity Risk: The Fund's investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Important Information

In the UK and Non-European Economic Area (EEA) countries: this is issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

UK Investment Trust Funds: This document is marketing material. The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

The investment trusts listed in this document currently conduct their affairs so that their securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to nonmainstream investment products and intend to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are securities issued by investment trusts. Investors should understand all characteristics of the funds objective before investing. For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in local language in registered jurisdictions.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2023 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

MKTGH0623E/S-2975108

---