Tim Crockford, European Equities Portfolio Manager at Hermes Investment Management, takes a look at the valuation conundrum facing asset allocators and identifies hidden gems behind the tainted branding of ‘European Equities’. Asset allocators are facing a valuation conundrum. We are seeing historical peaks in terms of relative valuations between the US market and other regional benchmarks. According to Bank of America Merrill Lynch, US stocks are at a 60-year high versus European stocks. In fact, almost every equity market in the world is trading at a substantial discount to US large cap stocks. While we tend not to make top-down market calls, it is hard to envisage a scenario where the US market can continue to extend its gains before the rest of the world begins to catch up.