European Stocks Aren't as Cheap as They Look
The apparent cheapness of European and U.K. equities has nothing to do with geography and everything to do with what companies are in the relevant markets.
When the bubble bursts…
Photographer: JOHANNES EISELE/AFPMost bank strategists think European stocks are really cheap. The snag is that this view is at once trivially true and very misleading. It is true because European and U.K. stock markets do indeed look cheaper than their U.S. counterparts. But this has nothing to do with geography and everything to do with what companies are in the relevant markets.
Look at the sectoral differences in the MSCI indices for the U.S., Europe and the U.K., which don’t vary that much from the more popular broad indices. Technology companies account for about 28% of U.S. large caps. In Europe and the U.K., the numbers are 7% and 1.5%, respectively. It is tech firms that account for the most gushing of nosebleed valuations.