Every month we calculate US equity markets using eight different metrics. We now also update European market valuations, using data provided by Morgan Stanley. Last month’s European market valuation data can be found at the following link.
The charts below ignore all the noise made by important European officials such as the Estonian cultural minister ; almost (basically all) the quantitve indicators indicate a very cheap European market. However, valuations overall have gone up as the global market has rallied this year. In comparision to the US, Europe trades at a discount, although this has histrotically been the case.
We also provide charts on individual European countries; countries like France, Germany, and Norway seem to be super cheap. Norway is an anomaly, and the reason it appears so cheap, is due to the high weighting assigned to the mega oil companies. Spanish, Greece, Austrian, Italian and Portuguese stocks are all trading below a price earning ratio (PE) of 10 based on 2012 earnings estimates.
Furthermore, Austria, has an EV/EBITDA of 4.0. Considering the economic conditions there, albeit slightly strained, it seems to offer a compelling value. All these countries should have high future returns, as valuation trumps marco over the long term.
As we mentioned in a previous article, Egypt (NYSE:EGPT), is up 37% this year, despite a super shaky political and economic situation, which is probably worse than any European country.
Portugal, Spain, Greece and Italy are all infamously known as the PIIGs. We believe the countries face severe economic and political uphevel due to austerity measures, but believe in the long runthat there is a lot of value to be found in these countries. Investors can get exposure to the countries through the following ETFs: Portugal (none), iShares MSCI Spain Index (ETF) (NYSE:EWP), Global X FTSE Greece 20 ETF (NYSE:GREK) , and iShares MSCI Italy Index (NYSE:EWI)
For Austria, the following ETF is available: iShares MSCI Austria Investable Mkt(ETF) (NYSE: EWO)
One thing to keep in mind when comparing Europe to the US is the following: most European countries use International Financial Reporting Standards (IFRS), while America uses Generally Accepted Accounting Principles (GAAP). Therefore the comparission is not completely Apples to Apples.
(Click TWICE on each chart to enlarge)