Credit Suisse has raised continental European equities to 15 percent overweight from 5 percent overweight, saying investors in a currency-hedged portfolio should benefit from cheap valuation, a weaker euro and too much growth pessimism being factored in.
It also says continental Europe is not as indebted as people have thought. The region has an aggregate leverage of 220 percent of gross domestic product versus 270 percent in the United States and 300 percent in the UK.
“The saving ratio in core Europe is 6x that of the United States. The problem is the distribution of the government debt. Hence, from an economic point of view core Europe can continue to finance transfer payments to the periphery,” Credit Suisse analysts say.
“To stabilise government debt-to-GDP, fiscal policy has to be tightened by 3 percent of GDP in the euro-area as a whole ... but by 7 percent to 8 percent in the U.S., Japan and the UK (assuming a normal economic recovery.”
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