Some believe the end of a long period of government and financial sector deleveraging is in sight, and the recent shift in policy thinking suggests the emphasis could move to growth and away from austerity.
Adrian Bignell, European equities fund manager at Invesco Perpetual, said: “What has happened is Europe has had a massive headwind of fiscal drag, but the headwinds are coming to an end.
“There is not a lot of growth in Europe – we understand that – but, importantly, do not confuse GDP growth as providing good equity returns. For the last 10 years, China has gone nowhere, and it has been the fastest-growing economic region, so we think we are going to get good returns out of the market, even with low economic growth in Europe.”
Earlier today the ECB announced it was reducing interest rates to 0.5%, the first drop for 10 months, while a couple of weeks ago there were indications some politicians were starting to question the wisdom of continued government cuts.
In it for the long term
Other arguments suggest that despite the persisting problems, investors should consider how their investments will perform over the longer term, and there are currently a range of well managed and profitable companies available at attractive prices.
Adrian Lowcock, senior investment manager at Hargreaves Lansdown, said: “Europe is starting to pull back from the brink and confidence is returning although problems still exist, as the recent bailout of Cyprus illustrates.
“However, European shares are cheap at present and much of the uncertainty has been reflected in the price. The key to getting the most from investing in Europe is through fund managers who are good stock pickers.”
Where to turn?
Lowcock champions two European funds, the Jupiter European Special Situations Fund and the Henderson European Special Situations Fund.
The performance of the funds over six months is shown in the graph.
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Jupiter’s Cederic de Fontclare favours companies with strong balance sheets, an ability to generate cash and those with exposure to faster-growing global markets. The fund manager has avoided volatile stocks, including banks.
The Henderson Europe Special Situations Fund, meanwhile, has holdings in businesses that have continued to grow market share in their specialist niches. Fund manager Richard Pease remains cautious about the forecast for the coming months, and holds a globally diversified portfolio of stocks.
