Richard Whitehall: European Central Bank President Mario Draghi spoke to European Union Parliament yesterday. He vigorously defended criticisms of the negative interest rates set by the ECB. He did acknowledge that negative rates were bad for savers and could affect financial stability if negative for too long.
But he also said there were symptom of a low economic growth over the long-term and not just simply a means to an end from the ECB. That probably implies that they may not go much further negative but negative rates are probably here for a while.
So how does that background affect the attractiveness of European equities? Well, within European equities, there potentially are attractive areas, including the financial sector. However, although headline level they maybe optically cheap, it's not clear on a risk/return basis that they are attractive. The effects of negative interest rates, a one concern; the profitability of European Union banks and that scenario and also the fundamental economic changes of Brexit.
So, where European Union equities may appear attractive compared to overvalued U.S. equities, that's possibly understandable, better opportunities on a risk/return basis probably lie within Japan and emerging market equities.