This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Can Europe's Markets Climb Through The Slump?

"Thanks to the ECB, people now expect that if you buy a government bond you'll get paid back in full on time and in the right currency," says David Kelly, chief global strategist at J.P. Morgan's money-management group. Before the central bank hatched the plan, bond buyers weren't entirely sure if their Greek bonds would be paid back in euros or in newly printed Greek drachmas.

Since then, Government borrowing costs in Greece, Italy and other struggling countries have dropped from dangerously high levels. European finance ministers have given Greece another two-year financial lifeline, and made strides toward shoring up the continent's banking system. In December, the rating agency Standard & Poor's gave Greece a better credit rating.

All these signs of progress propelled stock markets up. The Athens market surged 32 percent for the year, Italy's 8 percent. Germany's DAX index reached a five-year high this month. Hedge funds and other big money managers from around the world have started warming up to the region, putting billions into European stock funds for all but one of the past eight weeks, according to fund tracker EPFR.

Even after those recent gains, stock markets across Europe still appear cheap by standard measures. The typical company trades at less than 12 times its earnings over the next year and 6 times its cash flow. For U.S. companies, the same averages are 13 and 8.

To Kelly, there's a good reason European companies sell for a discount: The economic crisis is far from over. Europe's financial markets may look stable but the region's overall economy is shrinking. It's likely to keep shrinking, Kelly says, as long as European officials demand struggling countries cut spending on government services in exchange for aid.

"Austerity to fix a debt crisis doesn't work," Kelly says. "It only makes things worse. There's no evidence Europe's leaders really understand that."

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs