Falling Credit Yields The Icing On The Cake For European Stocks

Ian Scott, Joao Toniato, and Dennis Jose, Barclays’ analysts for European Equity Strategy, are overall bullish on European equities, and expect earnings and revenues to surprise on the upside during 2014 as well as 2015.

In their March 24, 2014 research note, they add another angle that enhances the potential for European equities - falling fixed income yields. This works in favor of companies and sectors that traditionally carry highly leveraged balance sheets.

Cheap versus US peers

Investors can tilt the risk- reward ratio in their favor by focusing on companies/sectors that are quoting at higher than normal discounts relative to their US peers on a historical basis.

“European equities as a whole currently trade on a price / book discount of 32% compared with...