Stick with Europe and Japan

With US stocks looking overhyped and overpriced, investors should turn their attention to continental Europe and Japan.

With Wall Street looking overhyped and overpriced, which regions in the developed world still look promising? Step forward continental Europe, which last hit a record high in 2015 and has some catching up to do. The single currency area's economy "has come back from the brink", says David Smith in The Sunday Times. Growth is at its strongest for six years, according to the latest business surveys. Unemployment has fallen to 9.6%, a seven-and-a-half-year low, compared with a peak of 12.1% in 2013. Overall inflation has risen to 2%, "a long way from deflation", so the danger of a Japan-style slump is receding.

Another reason to like European equities is the potentially sharp jump in earnings stemming from high operational gearing. European firms have high fixed costs, especially for labour. That makes profits very sensitive to a change in sales. Assuming sales track GDP growth, notes BlackRock's Richard Turnbull in the Financial Times, then a rise in sales should disproportionately benefit companies with high fixed costs.

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Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.