Based on the maxim that “when a consensus grows strong enough, there are great profits to be made from betting against it”, John Authers made a case in the FT recently for investing in European stocks, albeit “for those with patience”.
The current consensus, established once markets began to rally after the 2008 financial crisis, is that “the US will be fine, while Europe will not”.
Whilst agreeing that this is in fact based on reality and also that established market trends can continue long after the reality that established them has altered, Authers suggests that the current price of US and EU stocks compared to their respective average earnings can only be justified if the US boom continues while Europe falls further into recession.
This he says is “hard to swallow” with European corporates now “positioned for a revival”. Also the US economy could grow too fast, sparking inflation and causing higher interest rates that would hit share prices.
The conclusion is that the US cannot continue to stand alone and the consensus on growth stateside will actually pull the eurozone with it. Hence “European stocks will outperform US stocks over the medium term”.