uploads///PMI

Why Europe could prove to be a value buy

By

Nov. 26 2019, Updated 5:17 p.m. ET

European equities are now trading at levels that suggest investors are discounting another recession; the dividend on the DAX Index is at roughly four times the level of German Bund yields. While Eurozone stocks will need the support of some earnings growth to move forward, this will not be difficult in light of very modest expectations.

Market Realist – European stocks (EZU) have been hit by a slew of negative economic news. The inflation for September came in at 0.3%, much below the ECB’s target rate of 2%, as you can see in the graph above.

PMI

Article continues below advertisement

Market Realist – October’s Flash Purchasing Managers’ Index showed a slight improvement, climbing from 52.0 to 52.2. But this rise isn’t much cause for celebration. The new orders sub index has seen hardly any growth, while the composite output price index has fallen from 48.5 to 47.1 in October (as per data from Markit).

DAX index level

Market Realist – Investors have largely discounted the flurry of negative news. The German DAX (EWG) index fell sharply in October, you can see in the above graph.

euro area yields

Market Realist – Investors have been flocking to European Treasuries instead. There has been a steep decline in yields from the beginning of the year to now, as you can see in the graph above. German bunds fell to 0.72% briefly on October 15, 2014, as prices correspondingly rose. The low yields in Europe and Japan (EWJ) have been one of the major factors causing downward pressure on U.S. Treasury yields (TLT). Investors are turning to U.S. Treasuries (IEF) since they look better compared to their European and Japanese counterparts, reducing yields and increasing prices.

European equities could rise if earnings season offers positive results. The asset purchase program announced by the European Central Bank beginning this quarter could help lift stocks too.

Read on to the next part of this series to see why Japanese equities look attractively priced.

Advertisement

More From Market Realist

  • Rocket Companies sign on NYSE
    Financials
    Will a WallStreetBets Short Squeeze Save RKT Stock?
  • AutoNation racecar
    Financials
    AutoNation (AN) Stock Plays a Role in Bill Gates's Divorce
  • Honest Skin Care products
    Financials
    Honest (HNST) IPO Stock Is a Good Bet for Growth Investors
  • Woman using a microscope and BioNTech logo
    Financials
    There's Still Time to Buy BioNTech (BNTX) Stock
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.