European stocks hit a 16-year high! UBS analyst: European stocks are now better than US stocks

UBS analysts are more bullish on European stocks than US stocks.

Recently, the European stock market has been performing well, with major indices such as the STOXX Europe 600 Index, Germany's DAX Index, and the UK's FTSE 100 Index hitting record highs. In addition, the iShares MSCI Eurozone ETF (EZU) closed at its highest level since June 2008.

In response to this, UBS's strategy team led by Andrew Garthwaite publicly stated that they now prefer European stocks over US stocks. It is understood that the team's current investment priority ranking is Japan, the UK, Europe (excluding the UK), emerging markets, and finally the US.

The strategists cited 5 main reasons to support their view.

Firstly, there has been an improvement in economic data in the Eurozone. Some economic indicators in Europe, such as the Purchasing Managers' Index (PMI), are currently showing accelerated recovery, suggesting that the GDP growth rate gap between the US and Europe may narrow. An article by Wall Street News previously mentioned that the final value of the Eurozone's composite PMI for April was slightly revised upwards, with accelerated recovery in the service sector, reaching its highest level in 11 months.

Secondly, the interest rate cutting trend in Europe has already begun. The Swiss National Bank and the Swedish Riksbank have already taken action, and analysts expect the European Central Bank and the Bank of England to follow suit next month. Moreover, the path of interest rate cuts in Europe is clearer, as European inflation data is more stable, and due to the shorter maturity of European debt, the economic stimulus effect of interest rate cuts is more significant. Additionally, wage growth in Europe is limited, which can help control inflation on one hand, but on the other hand, if wage growth is slow, consumer purchasing power may be limited, negatively impacting corporate profit margins.

Thirdly, from a valuation perspective, based on industry-adjusted price-to-earnings ratios, European stocks are cheaper, with a valuation 18% lower than US stocks.

Fourthly, in terms of earnings expectations, the weakening euro and rising PMI suggest that earnings revisions for European companies may be better than those for US companies.

Fifthly, UBS points out that European companies have a 40% market share in the capital markets without US competitors, demonstrating industry leadership and uniqueness