A Bet on Europe Is a Bet on Drugs, Against Tech

The skew toward tech giants in the U.S. stock market is well known. Less appreciated is that Europe’s markets are now dominated by drugmakers.

Healthcare accounts for a quarter of the Stoxx Europe 50 index—almost as much as the almost 28% represented by information technology in the S&P 500. Five of Europe’s top 10 companies by market value are now drug producers:





and Denmark’s

Novo Nordisk.

This trend isn’t new, but it has been turbocharged by this year’s pandemic-driven downturn, which has highlighted the social relevance of the drug industry as well as its typically recession-proof profit profile. A vaccine AstraZeneca has licensed from the University of Oxford is a front-runner in the battle against Covid-19.

The rise of health care is one result to emerge from an analysis of Europe’s largest companies and how they have shifted over the past decade and a half. Another is the dominance of Switzerland. Since 2018, the continent’s top three firms have all been from the famously stable Alpine nation:


Roche and Novartis. Back in 2004, when FactSet records for the Stoxx Europe 50 index began, the top three were all British:





French President Emmanuel Macron during a visit to an industrial development laboratory operated by Sanofi.


Pool/Zuma Press

The U.K. market has a bias toward banking and oil and gas, industries that ruled the business world 15 years ago but are now so deeply out of favor that they don’t even feature in the top 10.


market value overtook that of the entire FTSE 100 earlier this month.

Europe’s markets have also been marked by the meteoric rise of the technology sector, albeit in a modest way. The five most highly valued companies in the Stoxx Europe 50 now include SAP, the German business-software giant, and ASML, a Dutch company that specializes in equipment to make microchips. Both are leaders in their respective niches, but cannot match the breadth and depth of consumer-facing U.S. giants like Alphabet and


Meanwhile, network providers such as Vodafone and


which led Europe’s stock markets in the tech frenzy of the late 1990s, continue to hemorrhage value in the current one.

One unlikely beacon of stability is Nestlé, Europe’s most valuable company for 10 of the last 12 years. While its U.S. peer Kraft Heinz has been punished for excessive cost-cutting amid sea-changes in consumer tastes, the Swiss company has continued to churn out profits from a globally diversified portfolio ranging from infant nutrition and dog food to coffee and Kit Kats. Consumer branding in general is a strength of European companies, particularly at the luxury end. China’s appetite for old-world finery has buoyed luxury conglomerate

LVMH Moët Hennessy Louis Vuitton

into the top 10.

There are mixed lessons here for those hoping for happier days from European stocks, which have underperformed U.S. ones almost continuously since the 2009 financial crisis. Healthcare should continue to benefit from demographics, but the region is still more exposed to problem industries such as oil and gas than the U.S.

The elephant in the room—or not in Europe’s case—remains the technology sector. Contrarian investors who want to bet that 2020 marks the final gasps of a tech bubble like the year 2000 would do well to buy a European tracker fund. Most will prefer to be more selective.

Write to Stephen Wilmot at stephen.wilmot@wsj.com

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