In our view the relative prospects for returns for this year in Europe are improving. Europe tends to perform best when global growth is improving (even European growth is likely to grow above trend this year), the euro is weakening and banks are outperforming.
- After several years of earnings underperformance we expect European profits to grow more in line with the US this year - but it has a larger valuation gap than we have seen for some time suggesting greater fear, or at least less optimism.
- Concerns about the banks and the political timetable in Europe held investors back from Europe throughout last year, in our view. From a low base we see room for increased inflows as Europe is seen as more ‘investable’.
- Finally, while we emphasise that some of the performance in Europe that we expect comes from a lower currency, and that in $ terms the expected returnsare likely to be closer between the two markets, we would look for any nearterm further strength in the S&P as an opportunity to increase some exposure to Europe.
Source : Goldman Sachs
