Your IndustryMar 29 2016

Investing in Europe – March 2016

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Approx.50min

    Investing in Europe – March 2016

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      Introduction

      By Ellie Duncan
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      Figures from the Investment Association for January show Europe ex-UK was the highest selling sector in the month with net retail sales of £250m. European equities were the bestselling region in January too, as net retail sales totalled £291m.

      Meanwhile, advisers are beginning to favour Europe over other regions. A survey of 101 advisers by rplan.co.uk reveals 39 per cent believe European equities are the most attractive asset class at present, behind UK equities and ahead of US, Japanese and emerging market equities.

      Max Anderl, head of concentrated alpha equity at UBS Asset Management, says: “Europe is in the middle of a relatively strong recovery. Consumer confidence is decent around Europe – [reported] car sales continue to rise quite strongly but just because there’s lots of pent-up demand.

      “[But] outside Europe things are slowing down, and European equities are extremely export-orientated.”

      Gam investment director Niall Gallagher has a similar outlook for the region. He notes: “The economic risks in Europe are no worse than they were last year despite the fall in equities. I think the evidence is that the European economy is performing okay.

      “Then there are some pockets of strong recovery in the periphery. The other thing that’s key for Europe is nearly half of the revenues of European equities are derived from outside of [the region].”

      This might be a particular concern due to the slowing growth in China, while a hard landing could potentially derail Europe’s recent recovery.

      Having overcome fundamental, existential threats, Europe emerges with renewed confidence Steven Bell

      Mr Gallagher says his Hong Kong-based colleagues do not believe China is heading for a marked slowdown but instead will grow between 5-7 per cent.

      “What they see is just this transition in China and the implications of that for European companies favouring more consumer-facing businesses than industrial or mining firms,” he adds.

      In 2015, the MSCI Europe index recorded a 2.8 per cent gain, according to FE Analytics, but European equities have taken a hit since the start of this year, with the latest European Central Bank announcement sending shares down again.

      BMO Global Asset Management’s chief economist Steven Bell acknowledges Europe has been slower than other regions to recover, but that its rebound is on a more “solid footing” now.

      He offers a longer-term outlook for the region, forecasting: “In our base case, Europe is able to see past its event-driven issues and focus on a more fulsome economic recovery. Rigid austerity is balanced with prudent fiscal stimulus.

      “Having overcome fundamental, existential threats from Greek solvency, massive unemployment and a double-dip recession, Europe emerges with renewed confidence.”

      But Mr Anderl believes Europe is still at the whim of the US, where worries about an impending recession are beginning to circulate.

      “It sounds a bit funny, but if the US consumer remains stable and GDP grows to 2.5-3 per cent over the next two to three years, the world will be absolutely fine and in good shape, and with it European equities,” he says.

      “If the US consumer retrenches and doesn’t spend, then US GDP will fall from here and possibly go into recession and take the world with it as it always does.”

      Ellie Duncan is deputy features editor at Investment Adviser

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