70% of Stoxx600 firms see profit hikes

This positive balance assuages the recent pains in the European index. AFI analysts expect this trend to keep up. This is why they recommend European stock markets over US values, namely, securities with high ROE, dividends and exposure to the UK and the US.

There are three reasons for such bet:

–          Monetary policy. Even though a large asset purchase plan is not expected, a lax approach in EZ monetary policy is more likely, as activity and prices cycle is more advanced. Tapering and EZ TLTRO are the basis of quite different liquidity schemes which will display an impact on risk asset prices.

–          Relative valoration bonds-shares. The Earning Yield Gap (EYG) – measures excess of expected return in stock market in comparison to long-term public debt – demonstrates European indexs appreciation potential – particularly Spanish Ibex – is higher than American’s.

–          Potential for profit recovery. Profit prospects for next years are brighter in the EZ (Stoxx 600) than in the US (S&P500). However, S&P500 performance in the last years (+40% since Jan2013) was better than Stoxx600 (+25% since same date).

S&P500 advances have been quite linked to Fed’s accommodative monetary policy. It is proved by the S&P leveraged buyout at maximum levels, as boosts the risk of falls in US exchange markets, specially when Fed starts the “withdrawal strategy”.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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