Equity Europe Case

Here today a post on the European Equity Markets Investment case. Dan McCrum at the Financial Times Alphaville with an entry where he comments on the Citi Bank latest Equity report about European Markets and the likely consequences of the recent announcement of ECB's Mario Draghi extraordinary measures. There's a growing expectation, on the positive side about the effects of these measures. Before a major correction.... which might be triggered in the other side of Atlantic Ocean... an European version of Quantitative Easing is becoming highly probable.

We can get a bit of the sentiment of the Citi researchers reading passages like these:

''So says the still optimistic Jonathan Stubbs at Citi, at least. Halfway through the year and the strategy team budge not from their forecast: 20 per cent total return from European equities this year.

''Shares are no longer cheap in absolute terms, but we stay bullish due to: 1) progressive global economic recovery in 2014-15, 2) return to double-digit earnings growth in 2014-16E, 3) super-cheap relative valuations, eg vs credit, 4) rising risk appetite, eg M&A, demand for equity. ECB QE later this year should also be supportive.''

 The sector valuation decomposition is strickingly important, as the consensus is that valuations aren't cheap, as the chart below (... as well as the above) seems to make clear:

''Indeed, the focus list of the bank’s analysts’ 15 to 20 favourite stocks is striking for its inclusion of a few insurers and banks, alongside the target rich environment of pharmaceutical takeover candidates and industrial recovery plays (click to enlarge).''

EU Shadows

Confirming all that investors are thinking about the political challenge across the European Union, the recent influential voices correctly point the seriousness of the Political dysfunction of most of the European Countries composing the Single Currency Euro. Credit analysts in the Global Banks are rightly positioned to view this issue given the importance of Capital and Credit Markets for political and Economic developments in the Eurozone, and as Alberto Gallo from RBS tells John Authers in the video below the operational challenges are huge and specially so for Banks in France, Spain and Italy.

Bruegel: Europe must clean the banks!

The excellent video that accompanies this post is from the European Think-thank Bruegel. And it is a very clear vindication for the enforcement of a sound Banking system in Europe and in the Southern Countries of the Euro area in particular. Along the way it is proposed a few ways to financing Small & Medium Enterprises (SME), like the creation of fully Public backed Investment Banks or the granting of access to securitisation for SMEs (my preferred). The full report (pdf) can be found here, where you will check the source of the video as well.

Europe's woes still around

As the short video below sketches Europe's economic prospects are still shadowed by very dark clouds indeed. It is specially remarkable the comparison with the American's economic situation and the narrow or in-existent real value of investing in European Companies that at a first look might seem to be under-priced or in need a market correction. And the Markets are unforgiving to Political turmoil as the recent activity over the Portuguese Crisis well illustrate.