Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

4 Reasons European Stocks Will Make a Big Comeback This Year

Stock-Markets / European Stock Markets Aug 22, 2017 - 05:24 PM GMT

By: John_Mauldin

Stock-Markets

BY STEPHEN MCBRIDE : Just a year ago, Europe looked like the last place where you’d want to put your money.

The UK had voted to leave the EU, top German and Italian banks were in shambles, and populists reigned on the Continent.

The issues that plagued Europe didn’t fade away, but the turmoil subsided.

While everyone was applauding the uptick in US growth after the election, Europe recorded higher growth in 2016. This reversal of fortunes has now begun to show up in the markets.


Since the beginning of 2017, the the main ETF for the European market (Vanguard FTSE Europe ETF (VGK)) is up twice as much as the SPDR S&P 500 ETF (SPY).

After six years of underperformance, European equities look very positive compared to their US counterparts.

Here are four big reasons why.

  1. The Valuation Gap

The cyclically adjusted price-to-earnings ratio, aka the Shiller P/E suggests European stocks are now trading at a 55% discount compared to US equities.

Source: Mauldin Economics

European equities today aren’t far above their 2011 crisis lows. Also, their value in relation to US stocks is the cheapest in decades.

In a recent outlook, Credit Suisse said Europe was its “most preferred region,” citing attractive valuations as a major reason.

Besides, European stocks also offer higher dividends than US equities. The average dividend yield in Europe is 2.5%... 0.6% higher than the S&P 500 average.

  1. Follow the Big Money

In the latest edition of the BoAML Global Fund Managers Survey, a record 81% of asset managers said that US equities were overvalued. In contrast, 23% believed European stocks were undervalued.

This spread is the largest ever recorded.

Source: Mauldin Economics

The respondents include 200 of the world’s top asset managers who oversee over $500 billion.

Their bullish sentiment toward Europe could be one of the reasons we have recently seen the largest inflows into the region since 2015.

Source: Mauldin Economics

In March, JPMorgan stated it was overweight Europe due to solid economic momentum and fading political risk. It also projected Euro stocks would outperform their US cousins by 16% over the next decade.

Given their recent outperformance, we are likely to see more inflows into European markets—especially with economic fundamentals now improving. (Download our free report to learn more about the new asset class raising in popularity that helps Investors earn 7% yields while lowering their risk)

  1. Credit Demand and Manufacturing Are Rising

Europe had higher GDP growth than the US in 2016. With two leading growth indicators now trending upward, the momentum is likely to continue.

The first indicator is a rising demand for credit. 

Source: Mauldin Economics

Given that banks fund 75% of loans in Europe, compared to just 25% in the US, this trend is very bullish for European financials.

The second indicator is manufacturing.

The manufacturing sector has been growing steadily over the last 12 months. In June, the European Purchasing Managers Index, a key economic indicator, hit its highest level since 2011.

Source: Mauldin Economics

These indicators paint a positive outlook for European equities devalued by years of stagnation.

  1. Bund Yields Are Rising

Since April, the German 10-year Bund yield has soared by 200%.

This is another positive sign for European equities. Credit Suisse found that for over a decade, European equities have tended to outperform US markets when Bund yields are rising.

Source: Mauldin Economics

I could go on, but it’s clear that years of stagnation pushed European equities down to bargain levels. Couple it with improving economic fundamentals, and we have a strong case for Europe’s big comeback this year.

Free Report: The New Asset Class Helping Investors Earn 7% Yields in a 2.5% World

While the Fed may be raising interest rates, the reality is we still live in a low-yield world. This report will show you how to start earning market-beating yields in as little as 30 days... and simultaneously reduce your portfolio’s risk exposure.

Claim your free copy here.

John Mauldin Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in