The Economist will present some dry tables and graphs each week, but this is one that jumped out at me. If you look closely at the three European stock markets you will notice how little sales comes from the local country. If you add developed Europe you will get something closer to the US and Japan but still not the same percentages.
These stocks are driven by global growth especially emerging markets. The lag of the EU markets relate to the US is twofold. First, growth in the EU has been slower with it just coming out of a recession, but as important, these markets are driven by the growth in EM which has been slowing. The EM markets have been a drag on global stocks markets. If we see more improvement in EM growth next year, we should see more improvement in EU stocks versus the US.
The link between sales growth, earnings, and stock valuation is not always close but it is still a primary factor for any valuation analysis.
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