Vladimír Urbánek (Kurzy.cz)
World markets  |  November 26, 2012 11:44:01

European stock awards shows zero earnings growth in 2013 and the scope for further rally


Recent awards European stocks indicates that investors expect profits to stagnate next year, increasing optimism about the potential growth continued rally. The average PE in the base of the index Stoxx Europe 600 moves at 11 compared to 13 before the start of the global financial crisis in 2008.
Average expectations for earnings growth next year envisages an increase of 5%. Above index would next year should grow by 10% and reach the highest levels since 2008. Although counterbalance the Bears in the sense that for all the problems in the eurozone led by high unemployment in Spain and Greece and in reducing state budgets in most European countries, is any consideration of profitable growth companies sheer utopia.
Contrary, Bulls sees current valuation 10% below historical levels as too pessimistic as well as the very high degree of risk attributed to European equity markets. Bulls expect next year's growth in the market capitalization of the index by 700 mld.EUR, which will be the second highest increase of 1.5 trillion euros, of which the market as fast as before in 2009. Stoxx 600 Index would have until the end of next year to grow to 301.5 points, which was its highest level since June 2008.
European shares rise this year, despite the fact that analysts lowered their earnings outlooks formation from 14 to a mere 1%. The expected profit growth at 25.04 euros per share is still about 11% below the level in 2007.

For comparison, the U.S. is estimated for next year's growth of corporate profits by 6% to 107 USD per share.

Stoxx 600 index moves 32% below its historic peak in June 2007. Titles from the index repudiate full 2.5 trillion euros from its market capitalization.

For European markets will be the case also for the elimination of risk factors compared speak with government bond yields region. Titles from the base of the index Stoxx 600 currently in diameter plotted investors 5.5% including dividends, which is almost 4 times the yield of German government bonds. The average dividend yield of 3.83% is more than double the average 1.58 percentage yield corporate bonds within the region. If we can eliminate some of the current European risk, investors will increasingly convert their hitherto strictly defensive strategy towards more profitable assets.
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