European Equities

US investors bought $23bn of European equities in December – largest single month of net buying on record – data going back to late 1970s. The cumulative total for 2013 as a whole was US$126bn of net buying – higher than the pre-financial crisis peak in 2007. March 2013 and a few single months in the late 1980s/early 1990s slightly exceeded the December number based on a comparison with market cap at the time. The rise in net buying in recent months has been similar to previous recoveries out of recessionary periods in Europe ─ such as the early 2000s, and early to mid-1990s. Our economists expect Euro area sequential growth to improve in 2014 and 2015 – driven by less fiscal drag, better export performance and less need for households to repair balance sheets after several years of aggressive rebuilding. This improvement in growth is not confined to the core; for example the Spanish composite PMI rose by 1pt to 54.8 for January, its highest reading since mid-2007.” (Goldman Sachs)

At the same time, when talking about Spain it should be mentioned that Spanish unemployment is at record highs, youth joblessness is at record highs, Spanish bad loans are at record highs and Spanish housing prices are expected to fall another 10-15%.

Buying European Equities

Net Buying % of Market Cap

Although “everything” is pointing in the right direction (according to strategists), the profit revision trend is quite striking.

“Over past month STOXX 600 2014 earnings estimates declined by 2.1%.” (Goldman Sachs)

Change in Earnings Estimate

A problem that sooner or later needs to be resolved is the fact that Euro area banks need more capital. Although risks are diminishing, banks are still an obstacle and a risk to the European recovery.

Euro Area Banks


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