European stocks are better prepared than their pricey US peers for the slide in earnings that’s set to take place this year, according Citigroup strategists.
A team led by Robert Buckland raised European equities to ‘overweight’ on Friday, saying valuations already discount a 15 per cent drop in earnings. At the same time, they cut US shares to ‘underweight’ on the grounds that earnings expectations are still too optimistic. Citi’s view adds to growing optimism toward European stocks, which had their biggest outperformance on record versus the US in the fourth quarter following years in the doldrums. With recession now also looming in America, investors are turning their back on expensive mega caps and focusing on Europe’s cheap valuations. The Stoxx