It is worth noting that the European Central Bank (ECB) has yet to take any decisive action in response to deflationary risk in the region.
But after its last meeting in May, markets pounced as Mario Draghi hinted the ECB may act in June to halt the threat of deflation.
Weaker than expected economic growth in the eurozone in the first quarter of 2014, which remained flat at 0.2 per cent, suggests the region is not on a particularly steady footing.
However, Can Elbi, portfolio manager of the JB Europe Focus fund at Swiss & Global, notes that 2014 is “shaping up to be a promising year for European equities”, with Germany the “engine” of the economic recovery.
For Mr Elbi, there is a “self-fulfilling element” to the recovery in Europe, as 65 per cent of the current exports of France, Spain, Portugal and the Netherlands are going back into the EU.
David Moss, head of European equities at F&C Asset Management, points to the recovery at the peripheral as an overriding theme in the past six months, with the collapse in bond yields having driven those markets higher.
He explains that countries such as Spain, Greece, Italy and Ireland have gone from being considered uninvestable to being in strong demand.
Mr Moss notes: “We can now get back to longer-term thematics. Looking at businesses that can deliver, no matter what the macro, but clearly with a more supportive eurozone backdrop than we had previously.”
He observes there has been a strong performance from Spanish and Italian banks more recently, with investors prepared to buy them again as confidence returns. But he cautions that there is no “real clarity” on the future of either country, with unemployment levels in Spain still high.
Mr Moss adds: “We always suggest investors look at strong businesses that have strong balance sheets, have the ability and the discipline to pay dividends and will be long-term winners on that basis.”
Ellie Duncan is deputy features editor at Investment Adviser
