Euro-area stocks will rally more than the world’s biggest markets this year if the European Central Bank increases purchases of government debt and a deal is struck to limit spending, according to ING Investment Management.
The Euro Stoxx 50 Index has rallied 19 percent through today from its lowest level last year as speculation mounted that the euro area would make available greater financial assistance for indebted countries that sign up to tougher budget rules, according to Adrian Van Tiggelen, the chief equity strategist at ING in the Hague, which manages $163 billion in assets. The 17 percent slump last year has left the measure trading with a price-earnings ratio of 8.8, compared with a multiple of 12.1 for the Standard & Poor’s 500 Index, according to data compiled by Bloomberg.
“The value is mostly in the euro zone,” Van Tiggelen said in a Bloomberg Television interview with Mark Barton. “That’s where stocks are the cheapest and where the most upside is when politicians follow this path. That would cause the euro zone to outperform most major markets in the world.”
The results of a summit in December, at which 26 of the 27 European Union members agreed to sign up to or consider tighter deficit limits and sanctions against offenders, would have been “unthinkable” a few months ago and “can’t be overstated,” German Chancellor Angela Merkel said in a speech last month.
Investors need to see government “increasing packages further or straight money printing by the ECB,” said ING’s Van Tiggelen. “Germany is dead against it, but as things progress they may warm up to the idea -- they are slowly warming up already. If the ECB would continue in that fashion -- quantitative easing, buying up government bonds under strict plans to control these governments -- that would be a very good case for the euro zone.”