Long-term investors should buy Europe now

Funds have been flowing out of European stock markets for three years now. But if you think the best time to invest is when everyone else just can’t bring themselves to, now might be your time.

Bloomberg did its quarterly survey of global investors at the end of last month. The results were pure misery. 75% of those questioned thought the euro area would fall into recession in the next two months. 53% thought the turmoil in the banking sector would get worse. 72% think at least one country will abandon the euro within five years. 51% think the whole eurozone will collapse, and a mere 20% thought EU markets offer the best opportunity over the next year.

Yet 40% of respondents went for the US as the best place to be. That’s despite the fact that Europe trades at a 17% relative valuation discount to the US in p/e terms and despite the fact that German and French equity valuations – on a cyclically adjusted p/e basis – are at a 30-year low.

I think that if you gave me the choice today of buying into Europe or buying into the US, I’d take the former.