Earnings and capital management key to Europe's next leg up
The European sharemarket has had a seemingly shorter recovery in 2015 than the US market had after its first round of QE in 2008, both in terms of size and duration. However, it’s important to remember that European markets have been recovering since late 2011 and since then its valuations have risen from 8.6 times forward earnings to 16.8 now, putting it in line with the US market. Accordingly, it may be the case that Europe’s March quarter earnings season may be more important than anywhere else, given its potential impact on 2015 prospects. So far the macro backdrop of the weaker Euro, lower oil, broad operational leverage and the ECB’s QE program has helped propel European stock markets up +20% in 2015, but with valuations approaching elevated levels the region's next leg up will have to come from positive organic earnings growth or increased capital management (dividends, buybacks and M&A) or combination of the two. (VIEW LINK)
The Perpetual Equity Investment Company Limited is an ASX listed investment company offering investors access to a portfolio of predominantly high quality Australian and global listed securities, selected by Perpetual Investment Management Limited.