Jul 12, 2022
From a valuation perspective, European equities look like Disneyland. The broad European equity index Stoxx 600 currently trades at 11.9 times forward earnings, its lowest valuation in a decade and a 30% discount to the S&P 500. While we believe there are indeed investment opportunities on the “unloved” old continent, there are also many pitfalls, ranging from political issues, the urgent need for structural reforms, monetary issues, lack of innovation and leading technology companies and more generally a lack of competitiveness. Recently added worries are the disruptions linked to the heavy reliance on Russian oil and gaz. No wonder why the estimated return on equity for Stoxx 600 companies is currently only 11.5% versus 22.1% for the S&P 500. There is still a lot of work to be done for Europe to regain strength and catch up.