The analysis team at Deutsche Bank, explains that with US equities trading at historically elevated valuation levels, investors have turned increasingly positive on the outlook for European versus US equities.
“Our European equity strategist Sebastian Raedler argues that the three conditions that are typically required for European equities to outperform are not in place. First, Europe tends to outperform only when Euro area GDP growth is above that in the US, but neither our economists nor consensus expects this to happen either this year or next. Secondly, the relative performance of Europe versus the US tracks the trajectory of relative EPS growth – and projections by our strategy teams in Europe and the US suggest the US will continue to beneﬁt from premium EPS growth this year (13% versus 9%).”
“Lastly, Europe has typically outperformed when the global composite PMI was above 55 (i.e. global GDP growth was strong, at around 4%), while our global economists’ growth projections suggest that it will ease back to around 53, from the current 53.6 (implying around 5% underperformance by Europe versus the US).”