Economists at Natixis look at four tentative explanations for the preference for US equities over European equities.
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Key quotes
“Stronger expected growth or a higher level of earnings per share in the United States than in the Eurozone would justify investor preference for US equities.”
“If long-term interest rates are low relative to long-term growth, then equity valuation should be expected to be high. From 2010 to 2013, the relative levels of interest rates and growth rates were more favourable in the United States than in the Eurozone. This has no longer been the case since 2014.”
“Tech companies have high growth and valuations and attract investors. Does their higher weight in the United States explain the gap between market valuations? It explains a significant portion – around 80% – in recent years.”
“US companies issue bond debt to buy back their shares, which European companies do not do. This leads to expectations of higher earnings per share and indices, which attracts investors.”
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