Salient to Investors:
Correlation between the Euro Stoxx 50 Index and the MSCI All-Country World Index has fallen to the lowest level since 2008. The Euro Stoxx 50 trades at 10.9 times estimated earnings versus 13.7 for the S&P 500 and 14.8 for the MSCI Asia Pacific Index.
Trevor Greetham at Fidelity Worldwide is underweight Europe, saying it will have sub-par economic growth for years, making it the least attractive region globally; and recommends buying S&P 500 futures and selling contracts on the Euro Stoxx 50.
Supriya Menon at Pictet recommends selling European equities as valuations are high, earnings forecasts are overly optimistic, and the ECB is beginning to reduce its balance sheet. Menon says any setback in Italy or Spain to cut budget deficits will hurt European stocks, and recommends buying Japanese shares.
Juan Nevado at M&G Investments said the countries that have been doing more monetary easing have seen better equity performance, and euro strength and LTRO repayments are effectively a tightening of monetary policy.
Alec Letchfield at HSBC Global Asset Mgmt is overweight euro equities, believing the region’s share valuations are too low given the steps being taken to keep the currency union together, and says there’s more chances of upside moves than in other regions.
Analysts expect the Euro Stoxx 50 companies combined profits to be 30 percent below the 2007 peak and sales to drop 1.6 percent in 2013: versus profits up 31 percent and sales up 3 percent for the S&P 500. Analysts predict euro region stocks will beat US equities in the remaining 10 months of 2013, because American stocks are already up 6.3 percent – 9.3 percent versus 1.8 percent gain for the S&P 500.
Economists expect the euro-area to continue to shrink for the first nine months of 2013. US GDP will grow 1.8 percent in 2013, Switzerland will grow 1.2 percent, and Japan will grow 0.95 percent. The European Commission predicts euro-area GDP to decline 0.3 percent in 2013, unemployment to rise to 12.2 percent.
Michael Howell at CrossBorder Capital said the euro region’s risks far outweigh the potential rewards and now is one of the worst times to buy Europe. Howell said the euro-zone is swimming against the tide and the ECB should expand its balance sheet massively.
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