While Verleyen, global CIO of SGPB Hambros, concedes that some of the numerical aspects of eurozone growth could be misconstrued as off-putting, he emphasised the importance of having a broader perspective.
“Our expectation for eurozone growth this year is 0.8%,” he told Portfolio Adviser. “I am not as positive on eurozone growth as I am on the US or UK, but there are some technical factors aside from the economy which will drive the market. QE, very low energy prices and a lower euro are positive for the market.”
“As with every year, the analysts anticipating the earnings of European companies started with expectations that are too high. Gradually they have been reducing there expectations, and they will continue to revise the figures.
“On one hand you might say that European stocks are too expensive and we should be underweight. But if you look at the global context, you cannot just look at valuations. The market is not only driven by fundamentals, but by politics also – sentiment is a big part of it.”
Verleyen doubts that the European Central Bank’s quantitative easing policy will be as effective in turning the economy’s fortunes aroudn as the Federal Reserve and Bank of England initiatives that preceded it.
However, he outlined the significance of the commitment exhibited by the ECB to providing a sturdier platform from which the eurozone can reverse its decline.
He said: “Of course some people may say that the ECB should have intervened sooner, like the Federal Reserve, but at least they are doing it. QE shows the willingness of the ECB to stabilise the situation, which is very positive.
“QE will not make the economy grow, but it brings stability to the financial environment and investors will start to invest again. That will gradually bring back confidence, which will reverse the negative cycle and move towards a more sustainable growth model.”
And what of the risk posed by the ongoing stand-off regarding Greek debt cuts and any subsequent fall-out?
“Greece has already implemented a lot of reforms, though it might not be enough,” said Verleyen. “Having said that, they have at least found a short-term compromise, so the risk of eurozone market deviation is not that bad. No one can say exactly what will happen in the coming years, but in the short-term I think they will reach an agreement that is positive for Greece and eurozone growth.”
Moving away from Europe, Verleyen is particularly positive on the prospects of the Asian continent.
His balanced-risk portfolio is overweight Japan – where he has hedged share class equity funds based on his belief that the yen will continue to depreciate – but his real optimism lies in the Asian emerging market.
“We like Asia ex-Japan, where we are overweight,” he expanded. “Most of the countries are oil importers and their economies will continue to benefit from the lower oil prices. We like Indonesia, where growth is nearly at 6% this year, and Vietnam.”
Verleyen is also enthusiastic on the potential of Chinese governmental reforms, which he highlighted as beneficial in the long-term for both China and neighbouring countries.
“Chinese growth is decelerating, but it is good deceleration,” he said. “We anticipate growth of 6.5% for this year. The government is aiming for more sustainable growth and implementing reforms, such as putting an end to shadow banking and there being too much credit in the economy. This is negative for the economy, but will lead to better quality growth, and even though growth is decelerating the economy will continue to do well.
“It is also very important for the countries around China – more and more there are Asian countries trading together. China used to rely on its exports, but now that is changing and we are seeing an intra-Asia story.”
