European Stocks Are Trading at Their Biggest Discount Since 2009by and
Stoxx 600 firms about 15 percent cheaper than S&P 500 peers
Optimism about global growth, ECB stimulus lifting shares
European stocks are shaking off their 2016 blues just as they turned the cheapest relative to U.S. peers in more than seven years. Investors are growing optimistic about global economic expansion and speculating on more stimulus from the European Central Bank, pushing the Stoxx Europe 600 Index to its biggest rally since the U.S. election.
Buffeted by Brexit, votes in Spain and Italy and a banking crisis earlier in 2016, the region’s equities have climbed 5.3 percent since a November low on bets of stronger global growth fueled by the U.S. Companies in Europe export more than companies in other major markets, according to a Morgan Stanley report this year.
“Though we’re not raging bulls on Europe, it’s a region we now strongly prefer over the U.S.,” said Alan Mudie, head of investment strategy at Societe Generale SA’s private banking unit, at a briefing in London. “It’s not just because of valuations, it’s also the fact that Europe is more geared to the improving global economy. That was a curse this year but will be a big benefit in 2017.”
- Companies in Europe’s benchmark trade at 14.2 times estimated earnings, about 15 percent lower than valuations for S&P 500 Index firms.
- The global economy is forecast to grow faster in the next two years than in 2016; global profit upgrades are at their highest since 2011 versus downgrades, according to a Citigroup Inc. index.
- Equities in so-called peripheral markets, deemed riskier assets, are among the biggest gainers this week as investors turn focus away from Italian referendum to tomorrow’s ECB meeting. The Stoxx 600 is on track for its highest close since September.
- Euro-area stocks typically benefit from a rotation into value companies and out of growth shares, a trend that should continue, JPMorgan Chase & Co. strategists led by Mislav Matejka and Emmanuel Cau wrote in a note Monday.