European equity markets are ‘incredibly cheap’ but investors should ‘remain cautious’, says Stephanie Kretz, a member of the Investment Strategy Team for Private Banking at Lombard Odier…

European equity markets are incredibly cheap. At a country level, Italy's price to 10-year average earning currently stands 72% below its historical average since 1969. The same can be said of Spain, France and Germany.

Numerous waves of liquidity injections planned by the European Central Bank should benefit equity markets.

Investors should remain cautious, however: the European Central Bank actions will not make structural issues magically disappear. More liquidity has never turned deficits into surplus, reduced debt levels, or created growth.  
 
The liquidity-induced rally can be enjoyed – albeit with downside protection and a strict selling discipline.