The cover of Barron's features a bullish article on Europe. I agree.
Europe made remarkable progress in 2012. Consider how far 10-year Greek bond yields have fallen:
The Barron's article states that the STOXX 600 trades at a forward 12 month P/E of 11.5 and sports a dividend yield of 3.8%.
Technically, European indices appear poised for further gains. I previously wrote about a possible inverse head and shoulders relative breakout of the Euro STOXX 50 (FEZ) against the MSCI All-Country World Index (ACWI) (see Intriguing head and shoulders patterns). Since then, FEZ has staged a relative breakout against ACWI:
Despite the bad news that the eurozone saw last year (Greece, Spain, Italy), eurozone stocks, as measured by the Euro STOXX 50 has shrugged off the negatives and rallied strongly since the summer. In fact, the index has staged a decisive upside breakout in the last month:
Looking longer term at the weekly chart, the index has managed to rally through a long-term downtrend that began in late 2007.
Bottom line: The short and long term technical picture, as well as attractive valuation of European equities, suggest that these stocks are poised for significant gains and outperformance in the medium term. If I had to make one forecast for 2013, this would be my favorite long for the coming year.
Full disclosure: Long FEZ
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
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