With last week’s news that Italy has formed a government, securing the country’s place in the Eurozone, at least in the short term, are European stocks now attractive? Relative to other choices, namely the U.S. and emerging market equities, we aren’t yet so sure. Putting political risk in Italy aside, European economic data have disappointed all year, earnings in the region have softened, and European stock indexes have underperformed their U.S. counterparts meaningfully over the past several years, as shown in our LPL Chart of the Day.
Despite the underperformance, we would not characterize European stocks as particularly cheap. LPL Research Chief Investment Strategist John Lynch noted, “There are plenty of European goods that U.S. shoppers would buy if they were on sale at 10% or 20% off. But we would argue that European stocks offer something closer to everyday low prices, and investors should be mindful that the discount on European stocks relative to the U.S. is not as big as it normally is.” We continue to favor the U.S. and emerging markets for equity exposure, and among developed international markets, Japan over Europe for suitable investors.
Look for more on our European equity market views in our Weekly Market Commentary, due out later today.
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