After more than a decade of staring enviously at the tech-fuelled US stock market, European equities are finally staging a comeback. Goldman Sachs thinks this may just be the start.
After all, the scale of the underperformance since 2007 is mind-boggling. Here is a GS chart showing the total returns of Europe’s Stoxx 600 relative to the S&P 500.
That’s from the latest report by Peter Oppenheimer, Goldman’s chief global equity strategist, where he argues that “Europe’s outperformance has further to go” (as long as the US stock market doesn’t really crap out, in which case everyone is going to feel it). Here’s the synopsis:
— Recent months represent one of the few times since the Great Financial Crisis that European equity markets have been outperforming the US in both local and US$ terms.
— This has been led by a combination of more attractive valuations and improved relative fundamentals, including a shift towards Value.
— History shows that when the US equity market has a meaningful correction there is no safe place to hide within equities. Whereas, in environments of a relatively flat US equity market, European equities can outperform.
— In US$ terms there have been three major periods of European equity outperformance since the 1980s. The average duration was 3.5 years with an average outperformance of 53% in local currency terms (27% annualized).
You can read Oppenheimer’s full report here.
Obviously, some people have predicting that European equities will begin to outperform US stocks annually for almost a decade, but there does seem to be a shift in sentiment towards the continent.
While US equity funds have seen outflows of $15bn already this year, according to EPFR, European equity funds have enjoyed inflows of $3bn. Hello Euroboom!
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