A fall in inflation that will boost consumer spending and below-average valuations mean UK shares are more attractive than European ones, according to JP Morgan's global market strategist.
Mike Bell said JP Morgan Asset Management has less than the market average invested in European shares, and the same as the market average invested in UK shares.
He expected the rate of UK inflation to continue to fall this year, which would boost consumer spending and economic growth as wages grow faster than inflation.
Mr Bell added that UK equities were trading at a cheap valuation when compared to many other markets.
He was less keen on European equities as the purchasing managers index (PMI) surveys from the region recently indicated the rate of growth would be closer to 2 per cent than the 3 per cent the market had been expecting. He also said inflation would also be lower.
PMI survey data acts as an indicator of the sentiment and intentions of a wide range of people and institutions in the economy and if the survey respondents are positive about the outlook for their sector, this should translate into greater levels of economic activity.
James Milne, who jointly runs the £2.1bn Crux European Special Situations fund said there was typically a lag between the improved economic performance and the earnings level achieved by companies in Europe.
He said equity valuations had risen to reflect a better economic outlook, but not to reflect the potential earnings growth and he would continue invest in what he called "niche" technology companies in Europe.
Meanwhile Ian Ormiston, who runs the £182m Old Mutual European Equity fund, said the earnings numbers reported by many companies in the economic bloc this year would be "flat" but when the stronger euro is considered, investors would still be better off.
Mr Bell’s other favoured region was emerging markets, where he said the growth trends were long-term and structural.
Raheel Atlaf, who jointly runs the £136m Artemis Global Emerging Markets fund said he is focused on technology and financial stocks, as both of those sectors are rapidly growing, with financial companies growing as the economy expands and technology companies growing as the younger populations of emerging markets have rapidly adopted to technology.
John Ferguson, analyst at the Economist Intelligence Unit expected emerging markets to continue to grow until about 2020, when they would be derailed by a downturn in US economic performance.
david.thorpe@ft.com
