A “healthy setback” in European equities has paved the way for investors to add back into the region, Premier’s David Hambidge has said.
The head of the firm’s multi-asset team said he was positive on the outlook for European equities, particularly on the recent fall in the region’s indices.
He said he had not yet added to the region within his multi-asset mandates, but was positive on its improving economic outlook, the weaker euro and the tailwind of monetary easing.
Since April 10, the FTSE Europe ex UK index has fallen by 5.7 per cent, driven by concerns about Greece leaving the eurozone and an unexpected spike in government bond yields across the region.
The pullback came after a strong start to 2015 – inspired by the European Central Bank’s quantitative easing programme – had seen the index rise by nearly 16 per cent in the first four months of the year.
Mr Hambidge said, following the decline, equity valuations in the region “remain reasonable”, but he warned they were “certainly no longer compelling”.
He said: “The market may have got a bit ahead of itself earlier in the year but it has now had a healthy setback, which could prove to be an opportunity to add exposure.
“But recent volatility in the eurozone sovereign bond markets has been unsettling, while the bailout talks in Greece are also an unwelcome uncertainty.”
Mr Hambidge said Premier’s multi-asset team, which includes Simon Evan-Cook, Ian Rees and David Thornton, had also begun to develop a more positive outlook on emerging market equities recently.
Emerging market equities have suffered against developed markets for several years and, after a strong start to 2015, entered technical correction earlier in June, having fallen more than 10 per cent from the April peak.
Mr Hambidge said valuations in emerging markets were “reasonable”, which he said was “in contrast to equities in most developed markets”.
“With attention this year focusing on markets such as the eurozone, emerging markets have lagged and have become somewhat ‘under-owned’, and on a long-term view may be attractive with global economic growth recovering,” he said.
“The stabilisation of the oil price is a positive factor, though the outlook for commodities is uncertain, while looming US interest rate hikes are also a potential headwind.”
In spite of the positive view on the eurozone and emerging market equities, Mr Hambidge said the Premier team was becoming increasingly cautious towards asset risks in general in the face of numerous headwinds
He said: “We have already been reducing risk so far this year – slightly lowering equity exposure, such as taking profits in markets like Japan that have performed particularly well.
“But while we believe we are in a maturing equity bull market, and valuations are becoming more stretched, we are not negative on equity markets.”