Deep discounts make eurozone equities attractive
January 2, 2019

Eurozone equities offer discounts versus their US counterparts that have only been as deep as they are now on two other occasions over the last 20 years, according to analysis by NN Investment Partners.

NN IP calculates that the price-earnings discount of eurozone versus US equities is currently 32 percent versus 49 percent in 2001/02 and 45 percent in 2008/09. On both previous occasions the world economy was in recession: the earlier period followed the bursting of the internet bubble and the second period was during the global financial crisis.

Patrick Moonen, Principal Strategist Multi-Asset, NN Investment Partners, commented: "US earnings will decelerate as the effect of the tax reform will ebb away and as non-financial companies' net profit margins are at unsustainable record-high levels.

"On the other hand, eurozone earnings will accelerate, driven by supportive domestic demand providing support to profit margins. 

"In absolute terms, both regions will witness mid-single-digit earnings growth. For us, this valuation/growth equation is the main reason why we prefer eurozone equities to US equities for 2019."





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Eurozone equities offer discounts versus their US counterparts that have only been as deep as they are now on two other occasions over the last 20 years, according to analysis by NN Investment Partners.

NN IP calculates that the price-earnings discount of eurozone versus US equities is currently 32 percent versus 49 percent in 2001/02 and 45 percent in 2008/09. On both previous occasions the world economy was in recession: the earlier period followed the bursting of the internet bubble and the second period was during the global financial crisis.

Patrick Moonen, Principal Strategist Multi-Asset, NN Investment Partners, commented: "US earnings will decelerate as the effect of the tax reform will ebb away and as non-financial companies' net profit margins are at unsustainable record-high levels.

"On the other hand, eurozone earnings will accelerate, driven by supportive domestic demand providing support to profit margins. 

"In absolute terms, both regions will witness mid-single-digit earnings growth. For us, this valuation/growth equation is the main reason why we prefer eurozone equities to US equities for 2019."



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