European fourth-quarter results, which get into full swing in the second half of next week, will test that apparent lack of concern over the strengthening regional currency.
Some cracks may already be showing. Earlier this month, Remy Cointreau (>> Rémy Cointreau) warned of damage from a stronger euro. Diageo, (>> Diageo) a big dollar earner in Britain, said on Thursday that a resurgent pound would cut into full-year sales.
A basket of European stocks that get the bulk of their revenues from abroad gained more than domestically exposed stocks over the past 12 months despite the euro's rise. The domestic earners basket rose 13 percent, the overseas earners up 16 percent.
The euro
"The better growth far outweighs the sensitivity to relatively minor moves higher for the euro against the dollar," said Gautam Batra, head of investments at Mediolanum Asset Management. The euro's three-year high was striking, he said, but the marginal move higher in the currency was not that big.
Euro strength has been a concern flagged by brokers this year and last. The currency has also been a concern for European Central Bank President Mario Draghi, who warned on Thursday that the surge in the euro was a source of uncertainty.
For a graphic on European Domestic vs. Overseas Earners Price Performance, click http://reut.rs/2DxXjOB
While the impact of the single currency's rise is yet to be seen on company earnings, UBS equity strategists said that a stronger euro is not incompatible with an earnings recovery.
"One of the reasons for the stronger euro has been the improved macro backdrop in Europe -- a boost for European earnings," UBS strategists said in a note.
UBS estimates that around half of Europe's corporate sales exposure is to North America and the rest of the world. Continental Europe gets 44 percent and the UK 7 percent.
UBS predicted that each 10 percent gain by the euro takes around 6 percent off earnings, similar to Deutsche Bank's estimate of a hit of 5 percentage points to the STOXX 600 earnings per share for every 10 percent rise in the euro.
Currently, 12-month forward earnings growth stands at around 9 percent for the euro zone, according to Thomson Reuters data.
So while market participants continue to keep an eye on the currency, for now the global economic upswing is expected to overshadow currency moves.
"If countries across the world, both emerging and developing, continue to grow at this pace, we should see Europe do quite well in terms of earnings trend because it is such a global index," said Nandini Ramakrishnan, global market strategist at JPMorgan Asset Management.
For a graphic on IBES 12-month Fwd earnings growth, click http://reut.rs/2Dy7OSg
(Reporting by Kit Rees and Tom Pfeiffer, editing by Larry King)
By Kit Rees
