Appetite for risk assets seems to be on the rise, of recent investor sentiment surveys are to be believed.
While inflation was last year’s primary cause for worry, this year seems to have started out with rather more manageable fears – a few wobbles over the EM selloff off the back of the Fed’s tapering programme and concerns over the Fragile Five and their currency outlooks appear to have been priced into markets.
A number of asset management groups have recently published the results of their investor sentiment surveys and a look across them indicates that Europe may be a sweet spot once again this year.
It’s no secret that markets behave indirectly to economies – especially in a more fragmented region such as Europe but perhaps 2014 will see more voices raised in favour of European equities as the crisis finally unfolds and domestic consumption gathers pace.
Domestic stories to explore
It is no longer the case that emerging markets are the sole driver of European earnings and a lot of European managers are looking inwards to find their profits.
Macro concerns remain at the forefront of investors’ minds but with valuations sitting in line with long-term averages and double-digit growth a strong possibility there will be some good entry points for stock pickers across the continent.
Tony Lanning, fund manager of the JPMorgan Fusion Funds, says the progress of Germany and the recovery of the peripheral nations are helping, but the region is still a way off its 2007 peaks with profit margins still repressed relative to history.
As UK growth looks set to continue to rise, with 3% a common prediction it certainly looks as though west is best again, for the time being, anyway.
With the housing market and real wage growth both showing positive signs the domestic market ought to be ripe with opportunities across the market cap spectrum.
Further to climb
Lanning adds he has taken profits from UK domestic stocks which have done “fantastically well” but he believes there may be further to go.
He says mega caps represented good value and cited BlackRock UK Focus as his fund of choice, whereas Aberforth was his fund of choice for small caps.
An improving economic backdrop and solid yield position have also led to a resurgence of investor appetite for UK commercial property with overseas demand once again joined by domestic investors. With a stronger backdrop for rental growth, and some reliable income streams available from leading funds, the sector is gaining appeal.
So, with EM declining, the West picking up and property also expected to come back into fashion this year, it feels like, dare I say it, things may be returning to some sense of ‘normal’. Whatever that is these days.
