Even though most analysts think that Europe’s recovery will really get underway this year, European corporate activity tells a different story. Europe continues to shift its revenue exposure away from developed Europe, down from 71% of revenue in 1997 to a projected 46% this year according to Morgan Stanley’s Global Exposure Guide. European companies’ revenues are driven primarily by corporate spending, which accounts for 53% of revenue exposure compared to 41% exposure to consumer spending and 6% government spending.

European Companies regional revenue exposure 0514

European Companies revenue exposure developed eu 0514

Emerging market exposure falling, Latin American exposure surprisingly strong

Europe’s revenue exposure to emerging markets is harder to quantify because of the outsized role played by resource companies, whose exposure isn’t always obvious.

“While an integrated oil firm may have a refinery in Angola, which would show up as African exposure in its annual report, this belies the underlying economic sensitivity of the company,” writes Morgan Stanley analyst Krupa Patel. Similarly, precious metals and other commodities often end up on world exchanges that make tracking the final user extremely difficult and not necessarily helpful. To get around this problem, Patel assumes that revenue exposure for resource countries is the same as percent global consumption.

That said, emerging market contributions to European companies’ revenues has jumped from 12% in 1997 to an estimated 33% in 2014, a 2.8-fold jump in 17 years, but has now started falling if you exclude resource companies for the entire timespan (including them simply tells you that the world is using more energy and resources than it was two decades ago). North American exposure is expected to rise to 18% with the US being responsible for most of that revenue (16% exposure), returning the percent exposure to 2007 levels.

European Companies sales exposure NA EM 0514

Latin America is surprisingly important to European companies’ revenues with a 9% contribution, meaning that Europe is more exposed to Latin America than to emerging Europe, the Middle East, or Africa which contributes 11% as a group, down a few percentage points since the recession. Developing Asia accounts for 14% of European revenues, having almost doubled since 1997. European revenue exposure to China specifically has grown from about 1% in 2005 to an estimated 7% this year.

European Companies revenue exposure LA DA 0514

European Companies revenue exposure EEMEA 0514

European companies: Exposure breakdown by industry

On an industry-by-industry basis, the European real estate industry is the most dependent on developed Europe, as you would probably expect, while other localized industries including utilities, consumer services, and retail are near the top of the list. European tech, pharma, and energy sectors are the least exposed to developed Europe.

European Companies revenue exposure by industry 0514