According to Russell Investments, Eurozone equities are still attractively valued, even though their margin of safety has clearly decreased.
”Valuations may have gone up, but euro-zone equities are by no means expensive; they look outright cheap, relative to U.S. Equities”, Russell says in its quarterly report. That’s why Russell Investments believes the overall outlook for the Eurozone is positive enough to maintain current exposures.
Growth may be lackluster, but the recession is over and austerity is in decline. ”The ECB may be slow, but it is dovish—which is to say, relatively easy in its monetary policy—and gearing up to provide more support soon”, Russell says.
Russell’s outlook for earnings of the Eurozone equities has not been changed. Earnings growth was still in negative territory over the past 12 months through September 30, 2013. Going forward,
modest single-digit growth remains in Russell’s outlook, driven by a gradual rise in profit margins on the back of low labor costs and increased revenue due to a small uptick in growth in 2014.
Although, Russell Investments warns against being complacent. That is because none of the region’s key long-term problems have been solved.
”The periphery is still stuck in its debt trap, the banking sector is weak and not lending,growth is insufficient to lower debt burdens and/or unemployment rates, and structural reforms are largely nonexistent.”