Reasonable valuations makes Europe attractive By Chris Tracey, investment director The MSCI Eu...
Reasonable valuations makes Europe attractive
By Chris Tracey, investment director
The MSCI Europe ex UK Index rose nearly 5% over the month, but even more impressive was the 20% gain made by the main French and German indices from their September lows. Having cut rates on 30 August and 17 September the ECB declined to complete the hatrick at its October meeting on the grounds that a third cut might have caused a mild panic. Not surprisingly the euro, which increasingly appears to reflect relative confidence in the ECB versus the Fed, weakened.
Certainly there was absolutely no evidence of strength in the European economy to constrain policy makers. For example, French unemployment rose for the fifth month in a row to 9.1% and growth estimates for Europe as a whole were reduced to around 1.5% for this year, with nil growth expected in the fourth and first quarters. Profits will, we estimate, fall by about 10% this year and rise by a similar amount next, a profile that in virtually every respect is relatively flat, at least compared to the US. In this respect we continue to find European equities attractive, both because the economic risks appear to be less (levels of debt, savings ratio etc) and the valuations quite reasonable. We remain overweight.
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