‘incomprehension’: Europe Flummoxed By Us Government Shutdown

Europe’s cheap stocks set for a long catch-up rally

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In some ways, the Washington shutdown illustrates a crisis of governance that can be detected on both sides of the Atlantic. By Sara Miller Llana ,Staff writer / October 2, 2013 People take pictures in front of the steps of the closed Lincoln Memorial. Most of the federal government is closed Tuesday in Washington. Alex Brandon/AP Enlarge Paris European leaders, mired in economic woe, have garnered thinly veiled and sometimes overt criticism from across the Atlantic for how they’ve navigated their domestic crises. Governments have fallen across Europe in recent years. Just today Italy is yet again on the brink, facing its own political collapse. The Christian Science Monitor Weekly Digital Edition But it is with incomprehension that Europe views the US this week, after a congressional dispute over President Obama’s healthcare plan led to a US government shutdown. So far European markets have reacted calmly to America’s political gridlock. And the shutdown has little direct impact on specific transatlantic relations. But it does add to a sense in Europe that the US is bogged down and focused elsewhere, even as discontent over governance is equallydiscernible on both sides of the Atlantic. RECOMMENDED: Think you know Europe? Take our geography quiz. It fuels an already confused debate when it comes to the future of transatlantic relations, says Ian Lesser, senior director for foreign and security policy at the German Marshall Fund of the United States in Brussels. Europe is already worried that the US is pivoting to Asia, and what this would mean for European strategic interests….

They have massively underperformed for three or four years because of economic activity in Europe, political uncertainty, etc. The catch-up could take a few years,” said Emmanuel Cau, equity strategist at JPMorgan. Top weights in the MSCI Europe Value Index include bank HSBC , and energy giants BP, Royal Dutch Shell and Total. While the STOXX Europe 600 trades at 12.6 times next year’s expected earnings, according to StarMine, HSBC trades at 10.4 times, BP at 7.7 times, with Shell and Total both at 8.2 times. The amount of money invested in European large-cap value equities was 24 billion euros ($32.49 billion) by the end of August, half as much as five years ago, Morningstar data shows. “The common theme is catch-up by lagging assets. That’s a late-cycle theme,” said Christopher Potts, head of economics and strategy at Cheuvreux. “We’re not going to do it in six months. If you’re talking about the recovery of value in Europe, it’s a five-year idea. It took five years to kill that view and it’s going to take years for it to come back.” In 2011, the only other time in the past decade when the price/earnings gap between growth and value was as wide as it is now, the broad market retreat started around three months after that gap began to close. That could be an indicator of when the broader market rally may run out of steam this time although not necessarily.