19th March 2008
Trustnet: European dream
Trustnet: European dream
Fund managers are in varying degrees of optimism as regards prospects for investors in the European equity market.
Nigel Hankin, European portfolio manager at Investec Asset Management says central banks around the world have taken swift action to alleviate the strains in the world financial system and, in Europe at least, the evidence points towards liquidity conditions having normalised.
“Although it is too early to say whether any lasting damage has been done to the European economic outlook, recent business surveys suggest companies have yet to see any sign of a slowdown and company managements have been aggressive buyers of their own stock – usually a good indication of the true state of affairs,” he says.
Monetary authorities he says are anxious to provide additional liquidity and historically periods when US interest rates are falling are usually good times for European equities. Also European trade is focusing less on the US than on China, India, Russia and the Middle East.
"European companies exposed to demand for infrastructure spending in these regions – be it railways, power stations, or general construction – should continue to see good demand."
Hankin adds gloom is already discounted in share prices with valuations looking more appealing.
“Valuations in some of the most loathed corners of the market – banks, construction, retailers – had reached such low levels that the merest hint of good news was enough to trigger a substantial rally from the middle of January.”
Nick Wells, product and communications director at Artemis says its European fund look for stocks that are cheap in the market and growing fast.
“We quite like the financial sector, especially banks which have come back a long way. The relationship between pessimism and risk aversion is extremely similar to 2003. There is lots of bad news out there but we see this as an opportunity to buy into banks and add weighting there. Central banks still have a lot of ammunition up their sleeves in the ability to cut interest rates and they are still producing large dividends.”
We could have a 1987-style scenario of market dislocation followed by rapid monetary response and rebound or “if a more conventional bear market, we are already getting much closer to previous trough valuations, in absolute terms and relative to other assets,” Hankin says.
Alan Stokes, investment director of Lawrence House Fund Managers agrees stock picking will be the key going forward.
“Europe should be an intrinsic part of any investors’ portfolio. But if you have a neutral position within a fund in Europe at 10-12% I would err on the underside rather than over that."
“I can’t be over bullish but at the same time can’t be negative. Focus needs to be on a stock basis rather than making a blanket view. The right manager can probably pick good stocks even in a poor market. Most value going up in the short term is based on sentiment, which at the moment is very negative. If managers were looking at true valuations then a lot of things that are cheap at the moment would probably be worth a lot more money.”
1 March 2008
Nigel Hankin, European portfolio manager at Investec Asset Management says central banks around the world have taken swift action to alleviate the strains in the world financial system and, in Europe at least, the evidence points towards liquidity conditions having normalised.
“Although it is too early to say whether any lasting damage has been done to the European economic outlook, recent business surveys suggest companies have yet to see any sign of a slowdown and company managements have been aggressive buyers of their own stock – usually a good indication of the true state of affairs,” he says.
Monetary authorities he says are anxious to provide additional liquidity and historically periods when US interest rates are falling are usually good times for European equities. Also European trade is focusing less on the US than on China, India, Russia and the Middle East.
"European companies exposed to demand for infrastructure spending in these regions – be it railways, power stations, or general construction – should continue to see good demand."
Hankin adds gloom is already discounted in share prices with valuations looking more appealing.
“Valuations in some of the most loathed corners of the market – banks, construction, retailers – had reached such low levels that the merest hint of good news was enough to trigger a substantial rally from the middle of January.”
Nick Wells, product and communications director at Artemis says its European fund look for stocks that are cheap in the market and growing fast.
“We quite like the financial sector, especially banks which have come back a long way. The relationship between pessimism and risk aversion is extremely similar to 2003. There is lots of bad news out there but we see this as an opportunity to buy into banks and add weighting there. Central banks still have a lot of ammunition up their sleeves in the ability to cut interest rates and they are still producing large dividends.”
We could have a 1987-style scenario of market dislocation followed by rapid monetary response and rebound or “if a more conventional bear market, we are already getting much closer to previous trough valuations, in absolute terms and relative to other assets,” Hankin says.
Alan Stokes, investment director of Lawrence House Fund Managers agrees stock picking will be the key going forward.
“Europe should be an intrinsic part of any investors’ portfolio. But if you have a neutral position within a fund in Europe at 10-12% I would err on the underside rather than over that."
“I can’t be over bullish but at the same time can’t be negative. Focus needs to be on a stock basis rather than making a blanket view. The right manager can probably pick good stocks even in a poor market. Most value going up in the short term is based on sentiment, which at the moment is very negative. If managers were looking at true valuations then a lot of things that are cheap at the moment would probably be worth a lot more money.”
1 March 2008
You need to be logged in to comment on this article