European markets close to pricing zero earnings post-2010

Europe is likely to experience lower growth due to "fiscal austerity". However, as a result of the awkward outlook, European equities look inexpensive.

On current 2010 forecasts, Europe trades on 12x earnings. Earnings growth will be strong in 2010 from reduced write-downs in financial company balance sheets, rebound from low levels of industrial activity in early 2009 and from ongoing corporate cost restructuring. Excluding a return to global recession corporate earnings growth will continue in 2011. Since 1989 European markets have traded on an average historic PE of 19x, and 16x forward earnings. For a longer time the S&P 500 has traded on an average historic PE of 15x over the last 140 years, during which investors have been rewarde...