BlackRock Sees Europe Buying Opportunity as Share Rout Overdone

BlackRock Inc., the world’s largest money manager, said one bright spot from the global stock selloff is that it’s “restored value” to European equities.

Leading indicators in the U.S. and Europe show their economies are still set to grow and will be supported by cheap oil and low interest rates, BlackRock’s global chief investment strategist, Russ Koesterich, who helps oversee $4.7 trillion, said in a report on Monday. He sees particular value in Germany, where seven days of losses have sent the DAX Index down 22 percent from its record in April.

“While European growth is likely to remain lower than in the U.S., given the size of the discount and the fact that the major risk associated with Greece has been temporarily removed” suggests that equities in Europe “once again look attractive,” Koesterich wrote. “At this point, the selling may be overdone, especially since investors may be exaggerating Europe’s exposure to China.”

A stock rout has spread through the U.S. and Europe, erasing more than $5 trillion from global equity markets and pushing German stocks into a bear market. The selling is driven by fear the slowdown in China is worse than expected after the world’s second-largest economy unexpectedly devalued the yuan on Aug. 11. Commodities fell to a 16-year low and emerging-market currencies weakened to record levels.

“Companies exposed to global trade, particularly in Germany, have been singled out for special punishment,” Koesterich said. “German equities are now trading at less than 12 times forward earnings and 1.5 times book value, roughly a 45 percent discount to the U.S.”

“The selling has restored value to certain parts of the market,” he said.

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