While many market observers are impressed by suddenly soaring European stocks, Paul Chew, Head of Investments at Brown Advisory is sceptical about a continued run in 2013…
Europe is a land of contradictions which was clear in 2012 as its economy and capital markets took off in opposite directions. While on the one hand, the EU is struggling with multiple sovereign-debt crises, and even though it fell back into recession, European stocks have in fact turned in excellent performance.
Yet we remain unconvinced that European equities will continue their strong run. European policymakers may have prevented a financial crisis last year, but they have so far failed to address the EU’s core problem: too much debt and not enough growth.
Looking beyond the recent rally, we still see macroeconomic risks, major fundamental growth obstacles and deteriorating stock valuations when compared to the US.
European stocks are currently riding a wave of sentiment but we believe that they may eventually fall victim to toxic economic conditions and unreasonably high valuations.