To say it’s been a strange year so far would be an understatement. There have been threats by the US to annex Canada, there is talk of invading Greenland, and there are plans to turn Gaza into the Riviera of the Middle East. For all we know, Wrexham will soon be declared winners of the Premier League, because you know, Donald Trump is a big fan of the Deadpool franchise.
However, what is truly shocking is that European stocks have outperformed their American counterparts by 7% since the first of January. Could this be the beginning of a new trend and snap fifteen years of underperformance? European stocks are certainly cheap and trading at price to earnings ratios that are nearly fifty percent lower than those of US shares.
Technically, the likes of the DAX40 and the FTSE100 also look quite enticing whilst making all-time highs and it seems there has been a bit of rotation as investors have taken profits in the Mega-caps to deploy capital into the laggards. On the other hand, the outlook for growth in the European economies hardly make for promising reading and there is evidently a reason why our stock markets are inexpensive.
The most likely explanation for the recent performance in European shares comes down to currencies. The Euro and Sterling are down nearly 10% against the Greenback since November, which has translated into higher profits for European exporters. That will not have gone unnoticed by an administration that is determined to cut the trade deficit. Probably best to enjoy it while we can, because there ain’t no sunshine when she’s gone (Bill Withers, 1971).
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