European equities may turn out to be a better investment bet than U.S. stocks thanks to the current valuation gap, Richard Cookson, Global Chief Investment Officer at Citi Private Bank, told CNBC.
“In general terms, Europe is trading on half the valuations of the U.S. , so it seems to us that you can’t simultaneously be hugely bearish about Europe and simultaneously that bullish about the U.S.,” Cookson said.
In a note to clients, Cookson wrote that currently the U.S. trades at a cyclically adjusted price-to-earnings (CAPE) ratio of 22, and twice book value, while euro zone equities trade at just above book value and have a CAPE of 12.
“The valuation difference has only been this extreme three times in the last 100 years and by definition therefore Europe has outperformed every single time,” Cookson explains. “Now you might say, well of course we have these systemic concerns, but I’m guessing a couple world wars would count as systemic concerns. So it’s not clear to us that that would be a reason not to go and buy Europe rather than the U.S.”
Cookson believes that the latest U.S. economic data appear better than the economy really is because seasonal adjustments are working in its favor.Page 1 of 3 | Next Page