Uncertainty about Greece has shaken European markets. However, they are still well ahead of the U.S. this year. And one strategist sees now as a time to jump into European stocks.
The past month has been a rollercoaster ride for European investors while Greece’s leaders and creditors remain at loggerheads. But with the help of the European Central Bank’s quantitative easing policy, indices in the Eurozone have seen huge rallies.
France’s CAC 40 (^FCHI) is up 19% this year even despite the crisis in Greece. Germany’s DAX (^GDAXI) has returned 14%. Meanwhile in the U.S., where the Fed is contemplating a modest amount of tightening, the S&P 500 (^GSPC) has gained just 0.8% in 2015.
Europe’s outperformance can continue even if Greece leaves the Eurozone, according to Erin Gibbs, equity chief investment officer at S&P Investment Advisory Services.
“I actually see this as a great buying opportunity,” said Gibbs who has over $16 billion in assets under advisory. “It has pushed European markets down a little. We’re getting some really attractive valuations.”
Gibbs calculates that the S&P Europe 350 (^SPEUP) trades at 15.2 times forward estimated earnings compared to the S&P 500’s multiple of 17 times forward estimated earnings. And she sees another factor making Europe a buy relative to the U.S. – higher earnings growth.
While Gibbs sees earnings growth for both Europe and the U.S. at 10% next year, she expects Europe to see earnings up 10% this year while the U.S. will remain flat.
“You’re getting significantly cheaper prices,” said Gibbs about European stocks. “There are still some really good values.”
Gibbs is not too concerned about taking on currency exposure when purchasing European stocks.
“In the past, you didn’t want to hedge because the dollar was depreciating,” she said. “Right now, we see it pretty much stabilizing. We had that huge run-up, over 15% over six months. We don’t except that going forward, particularly for the dollar versus the euro… So we feel the cost of hedging isn’t worth it at this point.”
Disclosures: Standard & Poor’s and/or one of its affiliates has performed services for, and received compensation from SNY, MAKSY, ZURY. All three are in one or more of SPIAS model portfolios advised by Erin Gibbs.
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