European equities are outperforming US equities finally, year-to-date. Why?

Leading indicators paint a rosy picture: the IFO survey reached its highest point since mid-2011 and the composite PMI revisits its highest level in nearly 6 years. The favourable trend in monetary aggregates allows counting on continued further strong readings in leading indicators.Investor resistance to buying the region’s equities has finally diminished, helped also by declining political concerns after the Dutch elections.  Of course, elections risks still loom like the French elections 1st Round on April on 23rd. However, investors have begun to also discount the better economic growth and earnings.

Germany remains our top pick thanks to its high cyclicality, exposure to emerging countries, solid domestic demand trends.Without surprise, analysts and strategists are upgrading their 2017 earnings estimates, to take into account

1. above average operational leverage
2. the positive outlook for energy companies coming from higher crude oil prices
3. the favourable impact on banks from rising bond yields
4. room for significant share buyback activity.

The combination of a favourable earnings outlook with attractive valuations (CAPE, P/B, dividend yields and relative to bonds) should allow delivery of above average price progression.