Investing Behemoth BlackRock Is Making A Pitch For European Equities

Depending on which day you happen to check, BlackRock has $6,600,000,000,000 in assets under management. Trillions with a T.

Three posts at the BlackRock blog:
July 19
The case for European equities

Despite structural regional challenges, Russ provides insight on several factors that support European equities.

With the S&P 500 up nearly 20% year-to-date, U.S. investors can be forgiven for maintaining a home country bias. Consistent with the post-crisis norm, 2019 is shaping up to be another year when U.S. equities beat the rest of the world.

That said the case for international diversification remains sound, in part because other markets are also producing stellar returns. Year-to-date, some of the Chinese equity indices are up more than 20%. And to many investors’ surprise, another bright spot is Europe (see Chart 1). While not quite keeping pace with the U.S., European equities are up 15.5% according to the MSCI Europe Index (in dollar terms). For investors under invested in international stocks, Europe is worth another look.

While there are challenges, including structurally lower growth, there are several factors favoring European equities, including: attractive valuations, generous dividends, low growth expectations, the global scale of Europe’s largest companies, and finally the relative dovishness of the European Central Bank (ECB).

Tailwinds for European Equities
European stocks trade at 13-14x next year’s earnings, cheap relative to nearly 18x for the S&P 500. Europe also scores much better on dividend income. Dividend yields are approximately 3.5% for the continent and 4.5% for the United Kingdom, nearly double the 1.8% on the S&P 500. The yield differential is particularly relevant given that last year’s backup in interest rates has reversed. In a world in which approximately $13 trillion of sovereign debt trades with a negative interest rate, a 3-4% dividend yield is no trivial thing....MORE

July 23
Reasons behind our upgrade of European assets

Mike explains why we have decided to upgrade our call on European assets, from equities to government bonds. 

We see the European Central Bank (ECB) shifting decisively dovish in coming months, against the backdrop of stabilizing growth outlook and persistent inflation undershoots. This is the main reason that has prompted us to close our underweight call on both European equities and credit, and to upgrade European government bonds.

Eurozone financial conditions, as measured by our financial conditions indicator (FCI) in the chart above, have already improved. Importantly, the ECB is likely to announce new stimulus in the coming months in an effort to lift stubbornly low inflation. The package we expect is not yet fully reflected in markets, in our view, and should help further ease financial conditions and support European assets. The ECB may outline its thinking at this week’s policy meeting and take action later in the year. Measures could include further cuts to its already negative 0.4% deposit rate and a new round of purchases of financial assets including corporate bonds.

A benign environment for now...MORE

And July 25
Europe at a crossroads: The time for bolder policy action is at hand