European stocks have been strongly out of favour in recent years. And, in a recent call with clients, it appears this lack of enthusiasm is still present.
When I asked what clients thought would be the top-performing regional market this year, only 3 per cent of the 700 respondents felt it would be continental Europe. More than three times the number thought it would be the US, despite the fact that at this point the S&P 500 index sat at a valuation equivalent to 23 times forward earnings versus 18 times for the MSCI Europe ex-UK.
Strong consensus views are always worth deep consideration, since this is most often where opportunities can lie. If expectations are low, the potential for upside returns can be high. There are four reasons to believe this consensus might prove wrong, and that Europe deserves a fair allocation in a global stock portfolio.