Performance contribution

The total return equity investors are achieving is composed of earnings growth, valuation change, dividends and forex change. Over the last ten years, the annual return in the US was 2 times higher than the one in Europe ex UK and Japan. According to the below analysis from Schroders, the interesting point is that this difference is entirely due to valuation change and currency depreciation. The earnings growth of European and Japanese companies was equal or higher to the one achieved by US companies overall. We conclude that the leadership of US equities could wane once the USD weakens and investors start putting higher multiples on European and Japanese stocks.