Fund managers have expressed broadly positive views for European equities following the speech by Mario Draghi, president of the European Central Bank (ECB), at the
Jackson Hole Economic Policy Symposium recently.
At least Draghi’s comments did not cause Allianz Global Investors to shift from its neutral position on the asset class, though the investment firm remains overweight certain European bonds.
Meanwhile, Russell Investments says Draghi’s comments that he is willing to pursue more stimulus spell potential for Europe’s stocks.
Two years ago, Draghi’s comments that he would “do whatever it takes” to save the euro currency led to a recovery in European stock markets. His Jackson Hole speech appears to rule out US-style quantitative easing, but falling inflation suggests he will not abandon stimulus measures.
Stefan Rondorf, strategist at Allianz Global Investors, which has over €373 billion in assets under management, says: “Mario Draghi has never been more explicit about declining inflation expectations than he was in Jackson Hole, but anybody expecting the dramatic announcement of large-scale US-style quantitative easing next is highly likely to be disappointed.
“The most we expect are some symbolic purchases of asset-backed securities within the next few months.”
Wouter Sturkenboom, Russell Investments’ Europe investment strategist, says: “We believe the ECB will continue to boost the Eurozone business cycle, but in a reactive as opposed to proactive manner. Draghi’s speech at Jackson Hole is a welcome confirmation of this view and we continue to see potential opportunity in European equities.”
European equity market indices improved in August, according to Russell Indexes. The Russell Developed Europe Index returned 2.3% for the month, while Norway, Switzerland, and France led at 4.2%, 3.6% and 3% respectively.
Heartwood Investment Management is also confident about European equities, despite the news that Europe failed to grow in the second quarter.
The firm, which has over £2 billion (€2.5 billion) of funds under management, says that Germany’s contraction by 0.2% from the previous quarter, together with the ongoing conflicts in Eastern Europe, has led to some caution in European business activity.
Jaisal Pastakia, investment manager, notes that both Germany’s Dax and France’s Cac stock markets have been down as much as 10% from their most recent mid-summer 2014 peaks, but says reduced activity should have been expected.
“Contrary to some investors, we read the recent data differently. Importantly, seasonal factors influenced the second quarter data, so a pull-back in activity should have been expected.”
Pastakia sees strong consumption growth and rising employment as positive indications of a modest recovery for the remainder of 2014. Improvements in credit conditions, as banks lower borrowing rates, and the recent weakening of the euro, may also be a source of relief for manufacturers.
Pastakia adds: “We do not expect the ECB to move in the near-term. We remain overweight European equities given decent valuations and current negative sentiment.”
©2014 funds europe
