The ratio of Eurozone earnings upgrades relative to downgrades is at its highest level since 2010, with net upgrades still rising, reflecting the best Eurozone earnings season for beats in seven years. Looking ahead, profitability estimates for European corporations have been improving since the summer of 2016 but remain below 50% their peak pre-crisis levels, which suggests there is more room to run.
“Valuations are attractive after years of underperformance,” BlackRock added.
Europe valuations remain attractive relative to historical levels. The MSCI Eurozone is only hovering around the 66th percentile of its historical valuation with forward P/E levels 11% below their 2015 peak. Additionally, Europe is also trading at a 16% discount to the S&P 500 and a 7% discount to the MSCI ACWI when looking at the forward P/E.
ETF investors interested in gaining exposure to Eurozone countries may consider something like the iShares MSCI EMU ETF (NYSEArca:EZU). EZU tracks the MSCI European Monetary Union Index, which is comprised of Euro member states, including France 32.2%, Germany 29.3%, Netherlands 11.0%, Spain 10.7% and Italy 7.2%, among others. Unlike other broad Europe ETFs, EZU does not include exposure to Switzerland or the United Kingdom.
For more information on European markets, visit our Europe category.