Rob Jones, co-manager of the UBAM Europe Equity AC EUR fund, there is a strong probability that the ECB will introduce an intensive asset-buying programme over the coming quarters which is liable to boost the sector. Structural reforms have stabilised the periphery, even if some risks remain – mainly because reforms have been selective and have not taken place in all of the eurozone countries. Concerns about deflation persist and both the ECB’s and Europe’s politicians’ answers have somewhat felt inadequate; this is why there is still a lot of fire power.
In the current context, the opportunity for income is important, especially since European equities trade at a premium from their 30-year average. The quality of the underlying assets has to be stressed.
Exposures to mid-caps and companies that are restructuring should be trimmed, to the benefit of cyclical European assets – such as financials. This should however be done in a highly selective way – HSBC and Swedbank are good examples of potentially interesting stocks. Given the uncertainties in terms of policy and the fact that the economic recovery is running out of steam in some of the southern European countries, Spanish and Italian financial assets should for example be reduced.
Another interesting theme is that of European companies that are particularly exposed to the US economy. The US economic cycle is well ahead of its European counterpart and also favours household spending. There’s a significant inflexion point in the United States at the moment, with low energy and food costs. Coupled with robust economic fundamentals, it means that these trends are boosting household demand by reducing the cost of living.
Names such as Nestlé, AB InBev, Deutsche Post, Diageo and Wolseley play to this investment theme, as a significant amount of their revenues come from the North American market. Deutsche Post is an interesting example, as it is one of the companies benefitting from the boom in e-commerce.
Deutsche Post is the biggest shareholder in the US company, DHL, and has seen its business volume develop significantly in recent years, moving away from that of a traditional postal company to a package delivery company. Moreover, the majority of these export companies are becoming more competitive as a result of the euro weakening against the dollar, itself a result of monetary policies on both sides of the Atlantic.