European Stocks Look Appealing Compared to U.S. Shares

Investors shying away from stretched stock prices in the U.S. are “gravitating toward Europe for cheaper bargains as the trade matures,” according to a recent Bloomberg article.

Morgan Stanley equity strategists raised their 2017 earnings-per-share growth forecasts for the MSCI Europe Index to 16% from a previous projection of 12%, the article reports. According to strategists at Societe Generale SA, the S&P 500 has “limited potential for returns over the next couple of years compared to euro-area equities which are trading at a 47% discount to their U.S. counterparts based on price-book value.”

Overseas equity funds, however, are not experiencing large inflows according to data provider EFPR—a mere $245 million compared to $32 billion for U.S. stocks. Political uncertainty may be a contributor, as the region both processes and prepares for various elections. The article reports that a survey conducted by Bank of America Merrill Lynch shows “68% of European fund managers predict positive economic momentum over the next year, while only 32% see downside risk to consensus earnings estimates, a two-year low.”

Still, say equity strategists at Barclays Bank, it seems that investors are “pricing in recession in the euro area, despite the recent acceleration in economic indicators.”

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