“The malaise over the euro has spread, infecting peripheral markets but spreading further with the passage of time – only the ultra-core markets such as Germany appear unscathed. However, even Germany is now suffering from concerns over the health of its banks, and particularly the secondary banking sector.
Peripheral Europe is in economic disarray – Spain and other countries are suffering from deflation, weak real estate prices and savage public expenditure cuts. Against this backdrop, the outlook for the financial and consumer sectors is negative.
Conversely the weakness of the Euro, together with encouraging data from emerging markets and especially that relating to the Chinese consumer, means that certain exporters are in a strong position.
But we remain cautiously optimistic. Much of the bad news is already reflected in share prices, valuations are relatively attractive and we expect a strong recovery in corporate profitability in 2010 and 2011.”
Phil Dicken, European fund manager, Threadneedle
“Markets have become very oversold and sentiment depressed. Valuations, especially in Europe, have also became very attractive, while signs of firmer activity in Europe and the accompanying rise in short-dated bond yields (European two-year yields have risen 30 basis points from their early-June lows to 0.77 per cent at) help endorse a brighter picture. Meanwhile, financial system worries appear to have lessened, as the European bank stress tests are less of a concern.
Nevertheless, we believe that markets are likely to remain choppy until the uncertainty over the current soft patch in activity is resolved. We currently have a small underweight position in stocks versus bonds and are deliberately targeting much less portfolio risk than usual. In our balanced portfolios we favour the UK, Hong Kong and the emerging markets. We have moved underweight in Europe and Japan, while
continuing to underweight the US and Australia.”
David Shairp, global strategist, JP Morgan
“While it would be refreshing to focus solely on the fundamentals of stocks and sectors we are alas not afforded such luxury.
The fact remains that we are at the mercy of macro. It is striking that following a substantial currency devaluation and highly attractive equity valuations Europe remains the epicentre of “debt threat” fears.
The thought of Europe printing money a la Bernanke might seem outlandish to those who see the hand on the ECB tiller as unremittingly Germanic.
Yet, if the fragility of the European banking system is further exposed in the weeks ahead, the cry for such inflationist policies will be heard not just from “Club Med”, but also from those considered “core” Europeans; namely France.
Such might prove the decisive moment for popular bonds versus unpopular equities. These days equities don’t come more unpopular than in Europe.”
John Bennett, manager of the European Selected Opportunities Fund, Gartmore
“The malaise over the euro has spread, infecting peripheral markets but spreading further with the passage of time – only the ultra-core markets such as Germany appear unscathed. However, even Germany is now suffering from concerns over the health of its banks, and particularly the secondary banking sector.
Peripheral Europe is in economic disarray – Spain and other countries are suffering from deflation, weak real estate prices and savage public expenditure cuts. Against this backdrop, the outlook for the financial and consumer sectors is negative.
Conversely the weakness of the Euro, together with encouraging data from emerging markets and especially that relating to the Chinese consumer, means that certain exporters are in a strong position.
But we remain cautiously optimistic. Much of the bad news is already reflected in share prices, valuations are relatively attractive and we expect a strong recovery in corporate profitability in 2010 and 2011.”
Phil Dicken, European fund manager, Threadneedle
“Markets have become very oversold and sentiment depressed. Valuations, especially in Europe, have also became very attractive, while signs of firmer activity in Europe and the accompanying rise in short-dated bond yields (European two-year yields have risen 30 basis points from their early-June lows to 0.77 per cent at) help endorse a brighter picture. Meanwhile, financial system worries appear to have lessened, as the European bank stress tests are less of a concern.
Nevertheless, we believe that markets are likely to remain choppy until the uncertainty over the current soft patch in activity is resolved. We currently have a small underweight position in stocks versus bonds and are deliberately targeting much less portfolio risk than usual. In our balanced portfolios we favour the UK, Hong Kong and the emerging markets. We have moved underweight in Europe and Japan, while
continuing to underweight the US and Australia.”
David Shairp, global strategist, JP Morgan
“While it would be refreshing to focus solely on the fundamentals of stocks and sectors we are alas not afforded such luxury.
The fact remains that we are at the mercy of macro. It is striking that following a substantial currency devaluation and highly attractive equity valuations Europe remains the epicentre of “debt threat” fears.
The thought of Europe printing money a la Bernanke might seem outlandish to those who see the hand on the ECB tiller as unremittingly Germanic.
Yet, if the fragility of the European banking system is further exposed in the weeks ahead, the cry for such inflationist policies will be heard not just from “Club Med”, but also from those considered “core” Europeans; namely France.
Such might prove the decisive moment for popular bonds versus unpopular equities. These days equities don’t come more unpopular than in Europe.”
John Bennett, manager of the European Selected Opportunities Fund, Gartmore
