Asia’s benchmark index traded at 12.3 times estimated earnings yesterday, compared with 13.6 for the S&P 500 Index and 11.6 for the Euro Stoxx 600 Index, according to data compiled by Bloomberg. That means European stocks would have to outperform the S&P 500 by roughly 17% to “catch up” from a valuation perspective. Said another way, companies are significantly cheaper in Europe right now.
Meanwhile, the European Central Bank (ECB) is preparing to address (at least in the short-run) the biggest bearish drag on European shares. From CNBC:
The European Central Bank is determined to bring down excessive risk premiums for member states in bond markets and should be ready to act very soon, ECB governing council member Christian Noyer said on Thursday.
The markets are vulnerable to a pullback in the short-run, but the longer-term picture still looks positive.