Draghi Touch Is Golden for Stocks as Europe Gets $11 Billion

Craig, a global strategist at JPMorgan Asset Management in London, says European shares look like a bargain next to bonds. Corporate profits are picking up, while yields -- already negative in some countries -- can scarcely go lower. Plus, investors’ worst fears about Greece and Ukraine have receded. 

“A lot of the negative stuff that was supposed to blow up in the past month didn’t,” Craig says. “We’re getting to the point where even a bond guy will tell you to buy stocks.”

His view is ratified by what’s known as the Fed model, a valuation metric that compares the equity market’s earnings yield to the rate on government bonds. While the measure isn’t unanimously embraced, if you use it, European stocks have never looked like a better buy. That’s even after the Euro Stoxx 50 Index jumped 15 percent in 2015, its best start to a year ever.

Estimated profits as a proportion of share prices in the Euro Stoxx 50 come out to 6.4 percent, 11 times more than government-debt rates as measured by the Bloomberg Eurozone Sovereign Bond Index. The earnings yield reached a 16-month high of 7.9 percent in January.

Investors poured $11 billion into European share funds in the two weeks through Feb. 25, including the biggest weekly inflow on record, while withdrawing $315 million from government debt, according to a Bank of America Corp. report citing EPFR Global data. Fredrik Nerbrand, global head of asset allocation at HSBC Holdings Plc, boosted his European-equity position in January and cut German bunds.