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Portfolio > Economy & Markets > Stocks

Will European Stocks Get Second Life in 2015? Searching for Alpha for January 2015

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I’ve been an avid fan of domestic equities for years.  After successfully navigating the global financial crisis via quantitative easing, this year’s lower energy prices and impressive economic growth offer the potential for even more gains.  But the U.S. is a full-priced boutique, and investors are paying designer rates for such pristine conditions. 

With no bargain bin, alpha seekers are being forced to look abroad for opportunities. That’s where Europe comes into play.

The performance differential between the equity markets in the U.S. and Europe is a veritable chasm.  And though he might act otherwise, ECB President Mario Draghi doesn’t have a choice but to press on the stimulus gas pedal. Draghi may play lip service to inflation avoidance, but higher prices would be a welcomed high-class problem at this point. There’s little doubt that large scale purchases of government bonds are in Europe’s future.    

European stocks are cheap, so the downside risk of owning them is muted.  Their upside potential warrants, in our view, inclusion in a diversified portfolio. 

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