Neglected European stocks set to soar

Contrarians will warm to a sector where there is "an absence of enthusiasm of any kind", says Tim Price of PFP Wealth Management.

Enter Europe: as Barry Norris of Argonaut Capital Partners points out, net flows into European equity funds have been negative for the past two years. Morgan Stanley notes that at a recent conference, just 19% of investors chose Europe as their favourite investment region while 42% plumped for the US.

On top of that, Europe is also trading at close to a 35-year low relative to US equities in terms of a composite valuation measure including the price/book-value ratio and dividend yields. Citigroup says that pan-Europe's price/book is close to mid-1990s levels.

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So European stocks, having lagged behind the US since March, may be set to outperform. Short-term risks abound, but as Warren Buffett says, "the time to get interested is when no one else is".

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