29th July 2013
Psigma chief investment officer Tom Becket says there is a strong chance European equities could storm to the front of the pack in the second half of this year.
In a note to investors, he writes: “Last week though saw a belated return to growth in the European manufacturing sector, driven primarily by the Teutonic heavyweight, but aided by an improving delta in the peripheral problem children. Indeed, the periphery has made significant steps back towards growth over the recent months (see Chart 1 below). This data point was extremely important as it was the first time that it had shown growth in manufacturing in 24 long and painful months.”
Becket says it is not just with manufacturing that Europe has seen growth but also the services sector.
“The services sector data is hinting that the European recovery is balanced and broad based, aided no doubt by better bank lending data, a general easing of financial conditions and Mario Draghi’s Outright Monetary Transactions (OMT) bazooka threat.”
“There is the possibility that increased confidence could lead to better consumption and therefore higher levels of activity. A positive feedback loop in Europe? Is European growth of 2% is possible in 2014? Yes. Pent-up demand and a retardant replacement cycle could be vital drivers for Europe next year and beyond.”
“With European equities the laggard in 2013 there is a strong chance that they will storm Froome-like to the front of the pack and lead global markets in the second half of the year. Sadly European equities are not wildly cheap and some have performed well, (notably our best performing investment over the last month has been our Europe-dominated R&M World Recovery fund), but nor are they very expensive, particularly when juxtaposed with the much-loved US. The hunt for opportunities in Europe is stepping up a gear.”