The recovery in Europe was given fresh momentum last week as economic growth data indicated an end to the eurozone’s 18-month recession.
The eurozone economy expanded by 0.3 per cent in the second quarter of 2013 compared with the first three months of the year, according to data published by Eurostat, led by its two biggest economies Germany and France. It compares with 0.4 per cent economic growth in the US for the second quarter.
However, this still marked a 0.7 per cent contraction in Europe compared with the second quarter of 2012.
It was the first quarter of positive economic growth in Europe since the third quarter of 2011 and brought to an end – at least statistically – the continent’s second recession in five years.
The eurozone’s recovery from the financial crisis was severely hampered following the massive government bailout packages given to Greece, Ireland and Portugal, as well as a €40bn (£34bn) bailout of the Spanish banking system.
Officials in Germany and the European Parliament hailed economic reforms for the return to growth, with Olli Rehn, European commissioner for economic affairs, saying the data supported the EU’s response to the eurozone crisis.
The data prompted the Euro Stoxx 50 index to gain 1 per cent last week between Monday and Wednesday. Germany’s Dax index gained 1.2 per cent through to Wednesday, while the French Cac 40 index rose 0.8 per cent.
However, developed market indices fell on Thursday as positive US jobs data again raised the prospect of the US Federal Reserve reducing its programme of quantitative easing later this year.
German 10-year government bond yields rose sharply from 1.68 per cent to 1.82 per cent, while French 10-year government bond yields also rose from 2.24 per cent to 2.42 per cent.
Old Mutual Global Investors’ Kevin Lilley, manager of the £54m Old Mutual European Equity ex UK fund, said he had begun shifting his portfolio to a more cyclical stance immediately following news of the improved economic data.
In particular he has sold out of food giant Nestlé - his fund’s eighth biggest holding at the end of June – and bought into Austrian steel company Voestalpine.
The move means Mr Lilley has a 10 per cent underweight position in defensive stocks, the maximum it is allowed.
“Defensives have done so well and the environment is less volatile – with the political environment dying down and growth improving I don’t see that Nestlé will outperform at all,” the manager said.
He added that investors were “running out of excuses to invest in Europe” and predicted that a return to positive news headlines would have a knock-on effect in the region, increasing consumer confidence.
Mr Lilley acknowledged that valuations were more expensive than a few months ago, but maintained they were “not stretched by historic levels”.
BlackRock’s Andreas Zoellinger, co-manager of the £91m Continental European Income fund, said he had been gearing for a more positive investment environment in Europe for some time.