Even after the extraordinary summer rally in European equities, strategists continue to punt European shares as cheap, and so worth buying. Unfortunately, it’s more complicated than that.
The sell-side analysts pushing the idea are too numerous to list, but one of the better argued cases is that presented by the cyclically-adjusted price-earnings ratio (CAPE), which averages profits over 10 years in an attempt to eliminate the effects of the economic cycle.
Paul Jackson at Societe Generale has some nice charts showing Europe looks cheap, and demonstrating the use of one derivative of CAPE, the cyclically-adjusted dividend yield.
James Mackintosh is the Financial Times' Investment Editor, writing and presenting the daily Short View column and video. In 16 years at the FT his posts have included comment editor, motor industry editor and hedge funds correspondent, as well as spells in the Parliamentary lobby and Paris. He was the first reporter hired for FT.com, joining two weeks before it launched.
John Authers is the Financial Times' Senior Investment Columnist, writing the Saturday Long View and a regular Monday column. In a 22-year career at the FT, his previous posts have included global head of the Lex column, investment editor, US markets editor, Mexico City bureau chief and US banking correspondent. His latest book is The Fearful Rise of Markets. 