Thursday, February 13, 2014

Europe MSCI Revenues Remain Downbeat (excerpt)

Europe’s economic indicators have been improving over the past year, especially in the UK, where the economic rebound has been surprisingly strong. The Eurozone indicators have been signaling a recovery since last summer, but a very weak one. Yet European stock markets have rallied strongly over the past year, led by the ones in the Eurozone’s peripheral countries.

Unfortunately, forward revenues isn't as upbeat. It’s been falling over the past year in the UK. Furthermore, the UK's forward profit margin has declined sharply over the past three years, which has depressed forward earnings over that period. That might explain why the forward P/E is relatively low at 12.5, which is a 7% discount to the world.

The forward revenues of the EMU MSCI is also falling, and has been doing so at a faster pace recently, suggesting that the region may be especially hard hit by weaker growth among emerging economies. The only good news is that the forward profit margin seems to have bottomed early last year and is recovering slowly.

With the forward P/E at 12.9, the region is selling at a 4% discount to the world. I am skeptical that the Eurozone’s economic indicators and MSCI fundamentals justify higher valuation multiples in the region given that they have rebounded back to the previous highs during 2009.

Today's Morning Briefing: Global Revenues & Earnings. (1) Not much evidence of EM crisis in weekly analysts' consensus estimates. (2) Are EM stocks oversold and cheap? (3) Some Eurozone stocks may be overbought and expensive. (4) Forward revenues rising to record highs in US, meandering elsewhere. (5) Margin squeeze in EMs. (6) China MSCI is cheapest since 2001. (7) Brazil’s revenues up, but margins down with P/E at 33% discount. (8) Eurozone’s weak economic and MSCI fundamentals may cap P/Es. (9) Japan is still relatively choppy. (More for subscribers.)

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