Salient to Investors:

The Stoxx Europe 600 Index is at 11 times estimated earnings versus 13 before the financial crisis. The average strategist expects earnings to rise almost 5 percent in 2013 and the Index to gain 10 percent to the highest level since 2008.  The Index is 32 percent below its June 2007 peak versus the S&P 500 which is within 10 percent of its all-time high, and its earnings yield of 5.5 percent is almost 4 times more than German government bonds, and dividend yield of 3.83 percent is 1.58 percent above the yield from corporate bonds. European profits would have to stay unchanged in 2013 for the P/E ratio to expand to the pre-crisis level of 13. The median analyst expects S&P 500 earnings to rise 6 percent in 2013 to a record $107 a share.

Graham Bishop at Exane BNP Paribas says valuations 10 percent below historic levels show investors are too pessimistic, and expects earnings to grow 9.4 percent in 2013, led by banks and mining companies.

Daniel McCormack at Macquarie Group said stocks are very cheap and the cheapest on record relative to bonds. He expects equity valuations to rise as central-bank stimulus forces investors to shift to riskier assets in search of returns.

Nadege Dufosse at Dexia Asset Mgmt sees room for further revaluation of euro-zone equities despite poor fundamentals that won’t change in the near term because risk will continue to decrease.

Gareth Evans at Deutsche Bank said stocks are pricing in an additional risk premium largely due to the current euro-area crisis, and expects a 23 percent increase in the Stoxx 600 in 2013.

Bears say 25 percent unemployment in Spain and Greece and austerity from France to Italy make expectations for any earnings growth unrealistic.

Paul Jackson at Societe Generale said the outlook for a worsening economy and political instability will weigh on stocks, and expects stocks to decline in the early months of 2013 gain 1.7 percent in 2013. Jackson said the long-term sustainability of Greek debt is far from guaranteed and solutions are not forthcoming,

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