Investors warned off contrarian European play

OneWayAs the outlook for European markets falters, with Greece, Portugal and Spain hitting headlines, contrarian investors tempted to make the most of the current environment are being warned against it.

Sovereign bonds issued by these troubled countries have fallen in value, the euro is suffering and stock prices across European markets are also under pressure.

Gregg Wolper, a senior mutual-fund analyst with Morningstar, the fund advisor, said: “Such overwhelmingly negative news often prompts canny investors to think of ways to benefit, to take the contrarian path.

“But that doesn’t mean you should rush to buy a Europe-stock fund. For one thing, most of the region’s stock markets haven’t fallen all that far, and the euro isn’t even close to its historic low. Further declines are hardly out of the question.”

Wolper noted that by and large, Greek and Portuguese stocks play almost no role in international funds and several investors may already have a significant exposure to European markets through other funds.

But Alexander Scurlock, portfolio manager of Fidelity’s European Growth Fund, said: “The ongoing crisis in Greece has affected sentiment towards European equities. It has also somewhat obscured the good news coming out of Europe, such as a recovery in global trade, inventory rebuild and a more competitive currency.

“Indeed, industrial production within Europe is running at impressive levels, while strong exports and high margins are likely to provide a further boost to company profits as the recovery unfolds. Furthermore, inflation remains subdued, which should mean that monetary policy stays accommodative for longer.”

In the beginning of May, Greece reached agreement with the International Monetary Fund the European Commission, and the European Central Bank for a €110bn financing package.

Scurlock said: “As credit concerns about peripheral countries ease, and the EU/IMF package for Greece falls into place, the chance of debt-restructuring should reduce significantly. As a result, we could see markets improve on the back of strong earnings growth and attractive valuations.”

©2010 funds europe

Executive Interviews

INTERVIEW: Put your money where your mouth is

Jun 10, 2016

At Kempen Capital Management, they believe portfolio managers should invest in their own funds. David Stevenson talks to Lars Dijkstra, CIO of the €42 billion manager.

EXECUTIVE INTERVIEW: ‘Volatility is the name of the game’

May 13, 2016

Axa Investment Managers chief executive officer, Andrea Rossi, talks to David Stevenson about bringing all his firm’s subsidiaries under one name and the opportunities that a difficult market...


ROUNDTABLE: Beyond the hype

Oct 13, 2016

The use of smart beta investing continues to grow. Our panel, made up of both providers and users, discusses what the strategy actually means, how it should be used and the kind of pitfalls that may arise when using this innovative investment technique.

MIFID II ROUNDTABLE: Following the direction of travel

Sep 07, 2016

Fund management firms Aberdeen and HSBC Global meet with specialist providers to speak about how the industry is evolving towards MiFID II.