With an improving microeconomic environment, European markets have seen a return over the past year. There has been economic and political progress for the continent, but the challenging backdrop it has faced over the past five years has made it difficult for investors to look at Europe.
European stocks saw extreme volatility, and currency issues saw talk of bailouts for countries such as Greece, Cyprus and Spain, which escalated to the point where removing some countries from the currency altogether was suggested.
Both the political and macro environment have meant investors have had to overcome many challenges, but managers are finally seeing an upside and now may be the time to start looking at Europe again without fear.
Jon Ingram, co-manager of the £224.7m JP Morgan Europe Dynamic ex-UK fund, says one of the main contributors to his performance is the decision to switch out of the more multi-national companies that have exposure to emerging markets into more domestically exposed stocks in time for the European recovery. “[The recovery] has been much mooted and has only really seemed to have come through over the past 12 months. But I think a lot of European fund managers were caught with too much exposure to non-Europe – European-listed companies but with very high global sales and exposure to emerging markets, which ultimately disappointed,” he says.
The fund’s largest country exposure is France, which Mr Ingram acknowledges may strike investors as surprising given what has been happening in the French economy. As recently as July this year, Pierre Gattaz, president of the Medef – the French equivalent of the Confederation of British Industry (CBI) – has said the 75 per cent tax companies pay on employee salaries above €100,000 (roughly £79,000) was damaging the country’s competitiveness. He called the country’s situation “catastrophic” and said that if France were a company it would be going bankrupt.
Elsewhere, president François Hollande, has promised to reduce public spending by €50bn (£39.5bn) by 2017, but many analysts doubt he will make the necessary cuts.
However, Mr Ingram says, “If you look at some of the names we have exposure to in France, they are actually companies headquartered in France but with very little exposure to the French consumer.”
