Why Are European Stocks At 100 Year Lows Versus U.S. Stocks?

WHY ARE EUROPEAN STOCKS AT 100 YEAR LOWS VS U.S.?

Europe was the global centre of commerce for centuries but has seen its equity valuations versus the United States fall steadily since the mid 20th century and is now at all-time lows (chart below).

European stocks enjoyed their strongest relative valuations following the two World Wars and during the Great Depression of the 1930s. The rally in European equities following the wars is understandable given the economic demand created to repair the damage wrought. The relative strength of European equities in the 1930s can be accounted for by the greater severity of the Depression in America.

The American entrepreneurial culture that has produced Apple, Google etc. has produced an economic advantage that will be difficult for others to displace.

The current valuation divergence is extreme and is likely to correct, but we expect U.S. stocks to retain their valuation premium for the foreseeable future.

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