“It is easy to paint a picture of gloom in Europe,” Robert Burnett said earlier this week in London. Burnett, manager at Neptune European Opportunities Fund, described the Eurozone as “a region burdened by sovereign debt problems that has shown precious little growth since the financial crisis began.” Not any more: it appears that a thin stream of hopeful economic data has triggered a wave of analyses in support of what could become the Old Continent’s solid green shoot moment.
According to estimates released by Eurostat, the statistical office of the European Union, in June 2013 compared with May 2013, seasonally adjusted industrial production grew by 0.7% in the euro area and by 0.9% in the EU. Year-on-year, industrial production increased by 0.3% in the euro area.
In an investor note, Neptune explained that “effectively many nations are now accumulating wealth, are viewed as a better ‘credit risk'” and “exports remain firmly on the increase owing to falling labour costs.” Burnett pointed out that after years of divergence between Germany and peripheral Europe, competitiveness is now converging meaning “growth across the continent in 2014 will surprise on the upside as a result.”
But in a cautious tone common to other voices heard today in the City, the investment group added that most governments in Europe continue amassing public spending bills worryingly higher than their income. It also said that imports and domestic demand have clearly collapsed partly due to the much protested austerity measures. “It is fair to say this fund has struggled in the past 18 months,” Burnet admitted.
At investment house BlackRock, chief strategist Russ Koesterich brought specific figures to put the latest euro enthusiasm in context. Although “there is at least some evidence that investors are beginning to recognize these improvements and sentiment is starting to shift for Europe,” the majority of capital inflows into equity funds ended into US stock funds. Only last week was “the first time in months” that significant moves were recorded into European funds, which amounted to $2 billion. Koesterich indicated that “on the whole, we do expect to see continued volatility in international markets,” including Europe and its still incipient comeback.
BlackRock remarked that the new developments in Europe “are quite encouraging, especially since we are finally starting to see a pattern of positive surprises in Europe’s economic data after months of disappointments.”
Nevertheless, international investors have had an optimistic response. Bank of America-Merrill Lynch Fund Manager Survey for August showed that net 72 percent of respondents now expect the world’s economy to pick up over the next 12 months, being the survey’s strongest reading in nearly four years.
“Sentiment towards the eurozone has improved notably. No fewer than 88 percent of European fund managers now anticipate the region strengthening in the year ahead, twice the level recorded last month,” BoA-Merrill Lynch said. “Respondents increasingly view stronger growth as the likeliest solution to the eurozone debt crisis, rather than interventions by the European Central Bank.”
The current earnings season would show global recovery reflected in European companies’ performance, said European investment strategist John Bilton. It highlights as well an external factor as the real engine of the Eurozone’s speeding up to growth, though. The opportunity for investors to tap the good news is based on the fact that the Eurozone is today the most undervalued major market. Only sustainable plans against the crisis will change the euro economies’ direction on the long term.