The Case for Europe
Currency, sector orientation and valuation are all favourable
The basic argument in favour of European Equities is that three of the largest sectors in the index, Financials, Industrials and Consumer are ranked in the top three in our models – unlike the situation in the US, where Technology is in the bottom three. All three have forces driving their outperformance which should last most of this year (respectively rising interest rates, re-opening of global supply chains and rearmament, and post-pandemic recovery). The region, its currencies and its equity markets were priced in October for a catastrophe which simply hasn’t happened, and which is now very unlikely. There may be some short-term profit-taking, but the excessive valuation discount and the currency misalignment will take longer than a few weeks to unwind.