Europe does have an image problem at the moment. The "grand bargain" that EU leaders hammered out in March to shore up confidence in the Euro zone has been an abject failure. The bond market continues to worry that the eurozone has rotten parts. Yields on Greece's two-year bonds recently hit 24% and the repeated reassurances from the Portuguese government that its financial house was in order failed to convince, forcing them to ask for a €78 billion bailout.
Given these dramatic headlines, terms like "debt crisis" "default", and "deflation" hardly inspire confidence, it is understandable that many investors are wary of committing cash to European stocks. Whilst that wariness is understandable, it rests on a fundamental misunderstanding of the forces that drive the earnings of European companies and, by extension, their long-term performance.
Despite the acres of media coverage devoted to the problems of Greece, Ireland and Portugal, these peripheral countries are of marginal importance when looked at in the context of the eurozone as a whole. Such economies are dwarfed by the core economies such as France and Germany.
In the core economies there is a virtuous circle of rising employment, stronger consumer demand and improving economic growth with the German economy growing by a record 3.6% last year. Such data, showing steady economic expansion, does not grab headlines in quite the way that emergency bailouts do, but it is the key factor behind the rising earnings of European companies.
To show the imbalance between the core and the periphery economies, a European Index tracker fund will typically have significant exposure to the performance of Swiss food giant Nestlé or Spanish telecoms group Telefónica, either of which will be of far greater significance than all of the companies listed on the Athens Stock Exchange combined.
Crucially, Europe's large companies are performing well, companies whose earnings, on aggregate, are predicted to grow by 14.7% this year and by 12.7% next year.
In the short term, the gloomy headlines may well continue to obscure the underlying fundamental attractions of European companies. Image problems come and go, but in the long-term it’s profits that count.