European equity markets look appetising, but crisis management must improve

LONDON | This year may prove an inflection point, with growth in equity markets in Europe and European smaller companies on attractive valuations leading the way. Fund Manager of TR European Growth Trust PLC Ollie Beckett believes expectations for positive returns from EU equity markets in 2012 have solid ground, notwithstanding the depressive tunnel the euro zone’s economy is currently passing through.

But then again, Ollie Beckett is an associate director for Henderson Horizon pan-European smaller companies.

“Investors have realised the world is still turning, with the US seeing early shoots of recovery and the emerging markets continuing to grow,” Mr. Beckett explained Monday.

“The European Central Bank has at the very least delayed a banking crisis with the Long Term Refinancing Operation Liquidity scheme. We, like others, see Europe is set to continue to provide a muted economic backdrop, particularly with the German inspired ‘fiscal compact’. Despite that, we think there are a large number of European smaller companies on attractive valuations that can benefit from growth outside of the region.”

The euro zone is still searching for viable solutions to its urgent need of greater integration, and fiscal mechanisms of wealth redistribution to solve the default risk of Greece. In this process, Mr Ollie’s fund considers the ‘fiscal compact’ as a stage one, which ultimately should be followed by growth stimulus.

“Anything else is neither socially acceptable nor politically viable. People, especially the young, must be given hope […] the policy response is gradually moving in the right direction (towards growth).

“It is unlikely to be a smooth ride but I remain cautiously optimistic about the months ahead. We can find exciting new ideas to make money for our investors.”

And some voices in the sector agree with him: Russ Koesterich, iShares global chief investment strategist at BlackRock, joins the look-on-the-bright-side train, too. However, his apprehensions are clearer:

“Assuming that Europe manages to muddle through with a mild recession, we expect the global economy to experience slow, but positive growth and avoid a recession this year. The cyclical bull market rally we’re experiencing could easily go on for the remainder of 2012.”

iShares stated today that it holds a positive long-term view of global equities, which still look cheap, particularly relative to bonds. In its market outlook report, the investment firm said that equities can post additional gains in 2012, though those gains are likely to be harder to come by than in January and will likely be accompanied by more volatility. Size, though, matters:

“we prefer to get equity exposure through global mega-cap stocks with high dividends, select developed and emerging markets, and lower-beta sectors.”

“We continue to hold an overweight view of Latin America, which is our favourite region within the emerging markets, and we particularly like Brazil. We also like China and Taiwan, and favour Russia for more aggressive investors.”

iShares, nevertheless, forecasts markets will remain volatile in coming months.

About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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