European Equities – Cautiously More Optimistic
European equity valuations are reasonable from a historical perspective—pessimism about sovereign finances and a slow recovery may be fully priced in.
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European Equities: Average Valuations in Abnormal Times
While European equity valuations are reasonable from a historical perspective, market pricing doesn’t provide much cover for risks stemming from sovereign finances and the halting economic recovery.
U.K. Property: Hold the Champagne
While property prices have soared over the past year, future returns are likely to be tepid, with gains capped by the huge debt overhang and limited lender capacity, but supported by the accommodative monetary environment.
An Update on Europe – Not Quite Time to Sound the All Clear
Authorities have taken decisive steps recently to quell concerns about sovereign debts. However, the underlying problems will take a long time to work through and thus volatility is likely to be a recurring theme in European markets for some time.
A Note on the Greek Drama
Current events in Greece are unlikely to lead to a breakup of the European Monetary Union, but underline concerns over sovereign indebtedness and associated risks to global currency, credit, and equity markets.
Can Sterling Regain Its Luster?
On a fundamentals basis the medium- and long-term negatives for the pound seem much more numerous than the positives, but sterling could surprise on the upside should real reform and a sustainable economic recovery occur.
U.K. Property: Patience Required
While prices are clearly more attractive than in the recent past, the massive debt overhang in the sector will not only hamper price recovery for some time, but could cause significantly more short-term pain.
Breaking Up Is Hard to Do
For all its flaws, the Eurozone is currently more beneficial than costly to member countries, and thus it is very unlikely the euro will break up anytime soon.
Assessing European Investment-Grade Credit
While current yields and spreads over government bonds make euro-denominated investment-grade credit a potentially viable option, investors should also recognize that this market may be less attractive than others, such as the US$-denominated corporate sector, which offers higher absolute yields and presents fewer uncertainties.
The Worst of Times—Or the Best of Times
Investors should move toward benchmark weights in U.K. and European equities based upon good valuations, but the near-term outlook remains problematic given poor economic conditions and earnings that have not yet corrected from cyclical highs.