“US earnings are 20% above peak, Europe earnings are still 26% below. The ECB needs to do something about that negative bank lending. Pace of corporate recovery Profits at Europe’s listed companies are recovering from the recession at a slower pace than during any business cycle since 1970. The fourth-quarter earnings season in Europe has so far revealed little evidence of the region’s nascent recovery feeding through into companies’ results. We are due some profit growth in Europe but all the negative forces are coming together in one final crescendo before we move into recovery.” (FT)
Declining risks have been a major driver of flows. US Investors have been under positioned and Institutional clients have been rotating in favor of the “undervalued” European stock market in hope of a normalization.
In December, US investors bought $23bn of European equities, that was the largest single month of net buying on record with data going back to late 1970s.
Profit revision trend Eurostoxx 600.
February 19, 2014:
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.