Why Europe’s stock rally has a long road ahead: Dhara Ranasinghe



The potential for a "great rotation" into European stocks from bonds could be on the way, given low -- or even negative -- yields in government bond markets.

"We think there's over 5 trillion euros ($5.37 trillion) now of cash and bonds that yield nothing, whereas even if you just buy a European index ETF [Exchange Traded Fund] you get a yield of 3.1 percent"

A 1 trillion euro stimulus program from the European Central Bank has helped drive government bond yields lower across the euro zone.

Germany's 10-year Bund yields– the benchmark in Europe – yielded just 0.07 percent on Monday and could dip into negative territory this week, according to some analysts.

European stocks meanwhile have put in a strong performance this year, aided by ECB quantitative easing, a weak euro and brighter prospects for the euro zone economy.

The pan-European Euro STOXX 600 Index has added 18 percent to date in 2015, and surpassed a March 2000 high earlier this month.

"At the end of the day Europe is recovering and European growth is surprising on the upside, we're waiting for earnings to come through to justify the PE [price to earnings] ratio," told David Owen, chief European economist at Jefferies International.

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