Morgan Stanley concerned about "Japanification" in Europe

|By:, SA News Editor

"Europe remains under the threat of prolonged stagnation as deflation and low growth are likely to become entrenched in the absence of vigorous action from European policy makers," says Morgan Stanley, cutting its recommendation on European equities to Neutral. The bank continues to prefer developed market stocks over emerging, but believes Europe's risk-reward profile is below that of the U.S. and Japan.

The team also notes European valuations - price-earnings ratios are at a 12-year high relative to the MSCI World All Countries Index at the same time "corporate earnings have disappointed, credit is contracting, and leading indicators have rolled over."

European equity ETFs: VGK, FEZ, EPV, IEV, EZU, DFE, HEDJ, FEU, FDD, UPV, FEP, ADRU, FEEU, DBEU, FIEU