Europe’s rebound has occurred without the benefit of the home-grown internet industry enjoyed by economies such as the U.S. and China. But portfolio manager Carl Kawaja points to other advantages that have contributed to the region’s rally.


Carl Kawaja

Equity portfolio manager

30 years of investment experience

View transcript

Matt Miller: You mentioned some of the positive things in your outlook about Europe.

Carl Kawaja: Yeah.

Matt Miller: Is there any sense that there's a downside where, at least over several years, Europe has lurched from crisis to crisis with Greece and things like that? Is that a blemish somewhere out there on the horizon that's a worry?

Carl Kawaja: I would characterize some of the issues in Europe as stemming more from a lack of innovation and entrepreneurialism rather than political dysfunction.

I have a slightly non-consensus view with respect to European integration. I think that, on balance, it has succeeded. We do have a common currency that was established despite great teething pains, and despite some very significant crises, has held together. And so it would've been easy at some maximum point for Italy, perhaps, to say, "You know, we're forgiving our debts; we're going back to the lira," and they chose not to, and decided it was not in their interest. Same with Portugal. Same with Spain. Spain suffered mid-20s unemployment . . .

Matt Miller: Terrible, right.

Carl Kawaja: [For] some countries, the rewards have accrued asymmetrically. Spain had a period where European integration was the best thing possible for them. And Spaniards were borrowing money at German interest rates and building new homes, and created a lot of wealth and opportunity in Spain. And it's certainly been wonderful for Germany. Germany has prospered, and it's the biggest country in Europe. So if you say it's not being successful, you'd have to leave out the biggest place.

Matt Miller: Right.

Carl Kawaja: And then it makes it a more difficult argument.

In the field of internet innovation, which has really driven stock markets, Europe's been very left behind. 

Matt Miller: Why is that?

Carl Kawaja: First of all, a lot of these internet companies have found to be kind of natural monopolies. No one searches on anything other than Google, really. I'll give you $100 if you looked up something on Bing in the last year. So there's a natural-monopolies element to it. Some of the U.S. companies were first, partly because the U.S. had an educational system that developed more computer science PhDs.

Then there's a self-reinforcing effect where someone's at Google, they're successful, they leave it, they start another internet company. That does well, and they start another one.  And Stanford and Berkeley became known as places for studying computer science, and Silicon Valley became known as a place for starting internet companies, and it all fueled itself. And I think we've seen that very powerfully on the internet, and it's been extraordinarily transformative.

But in a way, it's true of French and Italian luxury goods companies. You know? There are not really any successful Japanese luxury goods companies. I doubt you have any Japanese high-end shoes or jackets or shirts or something like that. 

Whereas you can go to Paris and walk around, and there's a nice shoe store and shirt store on every block, it seems like. And they just have a core competence at producing luxury goods. Hermes is there. LVMH is there. Christian Louboutin is there. And Gucci's headquartered there through Kering.

Matt Miller: Where [do] the Chinese internet companies fit in, in that regard?

Carl Kawaja: To me that is a regulatory question. China set the U.S. internet companies who can't come here. And although I'm generally not a fan of government intervention, it seems to have aided China in that they have developed their own internet companies. And their own internet companies are not poor shadows of the U.S. internet companies. They're quite innovative and progressive themselves. Alibaba offers a much richer shopping experience than Amazon does. Now, Amazon has some nice things with respect to delivery and so on, but you can buy so many more things on Alibaba. Their mobile app is so much richer and so much more sophisticated with videos and product demos and fashion highlights, and it's sort of a cornucopia of things.

Matt Miller: So they’re really a world-class —

Carl Kawaja: Yeah, they are a world-class e-commerce company. That doesn't mean they'll be successful in the U.S., but their service offering is extraordinary, and to some extent, the United States internet companies colonized Europe. The Facebook of France is called Facebook. The Twitter of Germany is called Twitter. The Google of Spain is called Google. There are no indigenous companies that are successful.