European equities look better placed for upturn than the US

On a local currency basis, the FTSE World Europe ex UK Total Return Index has outperformed the S&P 500 Total Return Index since the March 2009 lows, reflecting the fact that European markets tend to be more sensitive to global growth.

A similar result occurred back in 2003 when European stock markets went on to recover faster than US markets as economic recovery gained traction. This time round, however, the differential has been smaller – perhaps because the US was at the epicentre of the credit crisis and rising risk appetite has been reflected in a US relief rally. Europe could, however, shape up to be a more interesting recovery play. Three factors in particular could put clear water between the European and US markets. First, European stocks are cheaper. On a 12-month forward price/earnings ratio European stoc...