There is huge potential for struggling European value stocks to see a turnaround later this year, according to one fund manager.
The consensus in the market right now is that global GDP contractions will continue in the UK and Europe, and potentially in the US, over most of 2023.
But James Penny, chief investment officer at TAM Asset Management, said by the end of the year he expected to see stock markets - despite recession probabilities - begin pricing in an inevitable economic recovery.
Penny said: “This is less of a hope and more of a reliable and sequential response from markets historically which usually prices forward of the current economic condition by six to nine months.
"This could be a very exciting time as investors start to 'buy the dip’ ahead of what could be a strong bull market, in which clients can expect to return back to an environment where gains are seen each year, as opposed to losses.”
“There is an array of markets that have been heavily sold and now priced well below their fair value.”
These include emerging market stocks, including China, which have suffered this year at the hands of their zero-Covid policy.
He also expects UK small and mid-cap stocks to shine, as prices for quality companies are at generational lows.
Penny added: “As a result of the terrible war in Ukraine, we see huge potential in European value stocks which are - like UK mid-caps - currently priced at generational lows in some areas. ESG sectors are especially setting themselves up for a strong rally, particularly in areas linked to sovereign energy independence and green energy independence.
“There’s nothing like having your nation’s fuel held to ransom by Russia to make you realise things have to change. This positivity should manifest itself in the green energy transition and green energy infrastructure sectors, to name two.”
