“Despite good recent gains, we still believe Europe as a region is attractively valued, trading on cyclically depressed earnings at near trough multiples,” Jeff Taylor, head of European equities at Invesco in Henley-on-Thames, England, said in an e-mail.
“Recent economic data are pointing toward an improving macroeconomic picture — something we have believed for some time. The consensus view last year was that the eurozone would blow up and the only thing you want to own is Nestlé, but my view was the euro would survive, a view consensus opinion now seems to concur with,” he said.
Increased optimism is attracting more money mangers to equities, according to a survey of 100 fund selectors, defined as professionals who select third-party investment managers on a significant scale, compiled by London-based financial publisher Citywire for Invesco.
More selectors, 44%, plan to increase their exposure to European equities over the next 12 months than to any other asset class.
The poll, conducted in late August, found the eurozone crisis was worrying investors less.
Of course, other factors also are in play. The quantitative easing programs of central banks, notably the U.S. Federal Reserve, and the threat of withdrawal or tapering of those efforts, continue to help drive the ebb and flow of the financial markets. In the short term, political tensions such as the possibility of a military strike on Syria, also will play a part.
Then there's the politics of the eurozone crisis itself. German Chancellor Angela Merkel was under a certain amount of pressure to convince German voters that their taxes will no longer be used as blank checks to bail out the eurozone's most troubled economies. But after her re-election Sept. 22 it may be a different story, as Ms. Merkel has to be pragmatic to keep the euro together, especially if Greece needs further help.
But the crisis is a longer-term phenomenon, and has been a major driver of equity and bond markets for several years. Markets on both sides of the Atlantic have watched developments eagerly.
When the crisis was at its worst, share prices of banks and publicly traded money managers were among those to suffer most. As it became clear that countries like Greece could not service their debt and might need a bailout, the value of their sovereign bonds plummeted. The obvious casualties were the major holders of Greek debt, such as Greek banks.
Up to a point, however, investors felt a crisis in peripheral countries could be contained.
But Italy was a different matter. When sovereign bond yields in the eurozone's third-biggest economy soared to more than 7% in late 2011, there were clear signs of panic. UniCredit, Italy's biggest bank, held more than €400 billion ($530 billion) of the country's sovereign debt, and its stock price hit a 23-year low. The prospects of a crisis in the banking sector hit the wider equity markets.
Equity investors that had not paid much attention to bond yields before were now sitting up and taking notice. But the ECB brought Italy, and the others, back from the brink. It offered cheap financing for eurozone banks, bought bonds and promised to buy more. Though Mr. Draghi's pledge has yet to be really tested, it has been enough to convince the markets. Italy's bond yields have fallen back sharply, as have the bond yields of others such as Spain and Greece.