The S&P 500 is up 26.62% YTD on price return basis. But the STOXX Europe 600 is up by only 20.07% YTD on US dollar price return terms. This index is composed of 600 companies across 18 counties of Europe including the UK and hence can be considered as a proxy for European markets similar to the S&P 500 for the US markets. The difference of over 600 basis points in returns is big and makes European equities relatively attractive based on this measure. European equities have plenty of room to play catchup with their US peers.
The European economy is improving and many positive developments have occurred in the past few weeks. Here are a few headlines from the media:
- Spain’s Outlook Raised to Stable at S&P; Netherlands Cut (Bloomberg)
- Eurozone unemployment rate falls (BBC)
- Ireland will exit bailout in December (Independent)
- Portuguese Economy Expands for a Second Quarter, INE Says (Bloomberg BusinessWeek)
- UPDATE 1-Greece’s NBG cuts bad loan provisions as economy improves (Reuters)
However investors should not be in a rush to get into European equities. Paul Wild of JOHCM Continental European Fund quoted the following in an article in FE Trustnet :
The manager says that although the European market is becoming more resilient, the current rally needs stronger earnings growth to come through to support the now relatively high equity valuations.
“The European market has been purely re-rating, so the question is ‘is the rally over?’ I think it will pause and a modicum of patience may be required over the next few months,” he said.
Wild adds that the reason this patience will be needed is because the market re-rating is largely complete, which is evident in the way P/E ratios are nearing their historic averages. However, he says this is nothing that long-term European equity investors should be concerned about.
“I am a believer that the European macro picture will improve,” he said.
Source: Wild: European rally to forge ahead in 2014, FE Trustnet
Ten European stocks to consider for 2014 and beyond are listed below with their current dividend yields:
1.Company: Banco Santander SA (SAN)
Current Dividend Yield: 7.16%
Sector: Commercial Banks
Country: Spain
2.Company: Diageo PLC (DEO)
Current Dividend Yield: 2.33%
Sector: Beverages
Country: UK
3.Company: Edp Energias De Portugal SA (EDPFY)
Current Dividend Yield: 4.12%
Sector: Electric Utilities
Country: Portugal
4.Company: Safran SA (SAFRY)
Current Dividend Yield: 1.92%
Sector:Aerospace & Defense
Country: France
5.Company: Barclays PLC (BCS)
Current Dividend Yield: 2.34%
Sector: Commercial Banks
Country: UK
6.Company:BASF SE (BASFY)
Current Dividend Yield: 2.34%
Sector: Chemicals
Country: Germany
7.Company: Technip (TKPPY)
Current Dividend Yield: 1.53%
Sector: Energy Equipment & Services
Country: France
8.Company: Novo Nordisk A/S (NVO)
Current Dividend Yield: 1.31%
Sector: Pharmaceuticals
Country: Denmark
9.Company:Telenor ASA (TELNY)
Current Dividend Yield: 3.46%
Sector: Telecom
Country: Norway
10.Company: ING Groep NV (ING)
Current Dividend Yield: No dividends paid
Sector: Commercial Banks
Country: The Netherlands
Note: Dividend yields noted are as of Nov 29, 2013. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.
Disclosure: Long TKPPY, ING, SAN
