Things changed, however, when European Central Bank president Mario Draghi pledged to do “whatever it takes” to stabilise the euro and then unveiled the central bank’s outright monetary transaction programme.
Fund managers are heading into 2013 with a renewed sense of confidence, although they are cognisant that the currency bloc still faces a significant number of challenges.
Fiona MacRae, head of European equities at Alliance Trust Investments
“In 2013, the headlines for Europe are likely to be similarly gloomy.
“Despite the last headlines about the new Greek bailout agreement, there are a number of issues that throw doubt over its implementation and sustainability. Crucially, the level of debt is still viewed as unsustainable and a Greek exit at some stage next year is still a high probability.
“Furthermore, Spain is expected to formally ask for a bailout next year and we have Italian and German elections to contend with.”
David Coombs, head of multi-asset investments at Rathbone Unit Trust Management
“Europe seems to be boring investors into submission. Indeed, the debate around Greece’s debt is no longer a market-mover. Any resolution in Europe will mean a ‘hair-cut’ for peripheral bond-holders and Germany taking more of a financial hit.
“The European ‘event’ next year, barring any nasty surprises, will be the German election in October. Between now and then, chancellor Angela Merkel has an even more intricate balancing act to perform, between domestic objectives and broader European interests. If she wins, she will have time to allow her to follow less populist action and support the union – something that will be very positive for market sentiment.”
John Bennett, director of European equities at Henderson Global Investors
“As we have repeatedly pointed out, equities may have plenty of headwinds, not least the 2013 earnings forecasts, which are so fanciful as to question what sell side analysts actually analyse. Yet, rather like the manifold macroeconomic worries which seem to force institutional, as well as retail, investors to adopt the ‘ABE’ approach to investing: ‘Anything But Equity’, such concerns are, in the case of Europe, well known and well worn.
“If they are well known, they are likely to be in the price. We can only say this with confidence if we adopt a proper investment horizon: whether this ageing bear market ends in the next year or in the next two years, we remain convinced that those able and willing to take a five year or longer view on European equities will be rewarded by a more than acceptable total return from a bruised but deeply attractive asset class.”
Rob Burnett, head of European equities at Neptune Investment Management
“Germany will continue to lead the European economy but investors are likely to unwind more of the discount in the periphery of Europe.
“Economically, the EU is on track. The key risks are political – it will be important to keep the Greek government in power and prevent major shifts in policy in Spain and Italy. Provided political risks can be contained, both Spain and Italy may not need to sign a Memorandum of Understanding to get ECB assistance in 2013.”
