The smoke from the summer equities rout is beginning to clear, and with global stock markets having made gains on 6 October, while there is likely more turbulence still to come, it is at least a source of encouragement.
That said, investors must be selective when it comes to deciding which markets to put their money into, and for Luca Paolini, chief strategist at Pictet Asset Management, Europe is the most promising currently on offer.
With European company earnings rising on an annualised rate in low single digits, Paolini is confident that a number of macro drivers could instigate faster growth.
“European stocks look particularly attractive,” he said.
“The ECB’s ultra-loose monetary policy has translated into a burst of consumer spending, shielding the region’s companies from China’s slowdown and helping the euro zone economy grow for nine quarters in a row
“Also helping corporate Europe is the combination of a weak euro and low oil prices, which should have a positive effect on profit margins. Corporate profit margins in Europe are more or less in line with the long-term average which, when seen in the light of a recovering economy, suggests there is plenty of scope for them to expand.”
Paolini forecasts that, heralded by financials, European corporate profits could jump 10% during the next year, with this positive outlook enhanced by equitable valuations.
“Valuations for European stocks also look reasonable,” he expanded. “On measures such as price-earnings and price-to-book ratios, European equities trade at a 10% discount to both their US and global counterparts.”
But should investors see this as a blanket endorsement for European equities in general, or are there certain pockets set to outperform their continental counterparts?
