The 12 best-ranked major European markets

by Graeme Evans from interactive investor |

Find out which country ranks top for best earnings momentum, attractive valuations and profitability.

A ranking of major European markets by analysts at UBS has placed the UK at the top of the pile for cheapness, but among the worst for profitability and earnings momentum.

Sweden is the top ranked overall thanks to its earnings prospects and reasonable valuations, while Germany remains the leader among Europe's larger markets.

The report goes on to highlight that Germany, France, Italy and Sweden have been the most positively exposed to the current trends in bond markets. Yields have been in negative territory across Europe, with Germany's 10-year bond among those at an all-time low.

Low bond yields make shares more attractive to investors as a place to put money, although they are also an indicator of the stresses that could impact on future company earnings.

Expectations that the European Central Bank (ECB) will embark on a rate cut in the coming months have driven German and other eurozone government bond yields to or near record lows. 

The yield on US 10-year Treasuries has also fallen below 2% to the lowest in more than two-years, amid expectations that a slowing US economy and President Trump's trade war with China will force the Federal Reserve to cut interest rates at least twice in 2019.

The UBS scorecard ranked the 12 largest European equity markets by the four factors of earnings momentum, valuation, profitability and cyclicality and risk.

Country Euro area sales exposure (%) Earnings momentum rank Valuations rank Profitability rank Cyclicality/country  risk FINAL RANK
Sweden 48 1 4 10 2 1
Netherlands 43 2 12 2 4 2
Finland 53 11 2 4 3 3
Denmark 38 3 9 1 7 4
Germany 52 9 6 6 1 5
Norway 69 7 8 3 6 6
France 57 4 10 7 5 7
Italy 60 5 5 8 9 8
UK 19 10 1 9 10 9
Switzerland 37 6 11 5 12 10
Spain 48 8 7 12 8 11
Belgium 41 12 3 11 11 12

The Netherlands and Switzerland are the two most expensive markets, with the former having outperformed Europe by 54% since January 2009. Switzerland's relative price has only been higher in the last decade at the peak of the financial crisis and just ahead of the removal of the Swiss franc peg.

The UK is the cheapest market, with the price/earnings (PE) multiple relative to Europe the lowest since the tech bubble. The ranking for earnings momentum is tenth, with ninth for profitability.

The UK is still the largest market in Europe, but its share has fallen six percentage points to 27% since 2007, partly due to currency weakness after the financial crisis and then again after the Brexit referendum. Switzerland has seen the largest gain from 9% to 15%.

Germany is now ranked fifth in the UBS country scorecard, falling from its previous top ranking due to the weaker earnings momentum.

UBS said: "We turned more bullish on Germany at the beginning of March after the worst performance of any of the main European markets since January 2018. Some relative valuations hit 10-year lows.

"Germany was the best performing European market in April, but the third worst in May when trade wars concerns returned. From here, potential catalysts for Germany to outperform include better news on trade wars, stabilisation in the macro backdrop and a rise in bond yields."

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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