The catch-up could take a few years,” said Emmanuel Cau, equity strategist at JPMorgan. Top weights in the MSCI Europe Value Index include bank HSBC , and energy giants BP, Royal Dutch Shell and Total. While the STOXX Europe 600 trades at 12.6 times next year’s expected earnings, according to StarMine, HSBC trades at 10.4 times, BP at 7.7 times, with Shell and Total both at 8.2 times. The amount of money invested in European large-cap value equities was 24 billion euros ($32.49 billion) by the end of August, half as much as five years ago, Morningstar data shows. “The common theme is catch-up by lagging assets. That’s a late-cycle theme,” said Christopher Potts, head of economics and strategy at Cheuvreux. “We’re not going to do it in six months. If you’re talking about the recovery of value in Europe, it’s a five-year idea. It took five years to kill that view and it’s going to take years for it to come back.” In 2011, the only other time in the past decade when the price/earnings gap between growth and value was as wide as it is now, the broad market retreat started around three months after that gap began to close. That could be an indicator of when the broader market rally may run out of steam this time although not necessarily. In 2000 the gap between growth and value stocks was narrow yet the overall market downturn did not begin until around five months after the gap began to close. In the past five years the MSCI Europe Value Index has underperformed growth by nearly a quarter, in the run-up to the 2000 market peak, the gap between the two was less than 5 percentage points. SMALLER POOL In the current market rally – European stocks rose in 14 of the last 16 months and the STOXX Europe 600 index is up by around a third in that time, trading near five-year highs – the pool of obviously cheap, “deep value” stocks for investors to choose from has already contracted. The number of STOXX Europe 600 companies trading below their 10-year average price/earnings ratio has halved to around 270 over the past two years.
Letta won a confidence vote on Oct. 2 with support from former premier Silvio Berlusconi, who reversed his position after initially trying to bring down the five-month-old government by withdrawing his ministers from the coalition. Popolare di Milano surged 16 percent and Mediobanca gained 12 percent in Milan trading. UniCredit SpA, Italy s largest lender, advanced 9.6 percent. Unilever dropped 3.7 percent in London trading after saying Sept. 30 that underlying revenue for the third quarter rose 3 percent to 3.5 percent. The worlds second-biggest consumer-goods maker reported 5 percent growth in the first half and second quarter. A gauge of food and beverage stocks was the second-worst performer among 19 industry groups in the Stoxx 600. Nestle SA, the worlds biggest food company, lost 1.7 percent. SABMiller Plc slipped 4.8 percent for its biggest weekly decline since November 2011 amid a strike at its South African beer division. Nokian Renkaat Nokian Renkaat tumbled 9.7 percent, the biggest weekly drop since October 2012. Full-year net sales and operating profit will decline because of the rubles retreat against the euro, the Nordic regions biggest tiremaker said. Hochtief AG, which owns a controlling stake in Leighton Holdings Ltd., lost 4.9 percent for the largest slide since June. Leighton, Australia s biggest builder, allegedly paid bribes to win contracts, the Age newspaper reported.