While most of the continent is thinking more about the beach than the markets at this time of year, shrewd investors keep an eye open for buying opportunities at all times and European equities is an asset class which could offer a few gems still.
The European Central Bank’s vast quantitative easing programme still has plenty of life left in it, even if much of the upside has now been priced in.
According to John Baker, manager of the JPM Europe Dynamic ex UK Fund, expectations for eurozone growth have gone from predicting outright recession to anticipating as much as 2% growth.
This improving backdrop means there could be around 5% earnings growth and there are a few sectors in particular which may reward investors well over the summer and beyond.
“Take out the struggling energy sector and the earnings growth expectations rise to 10%,” said Baker. “Further strip out commodity related stocks and areas like Switzerland, you’re talking about as much as 15% underlying earnings growth. We’re seeing positive surprises in earnings results with more beats than misses, which is very encouraging for European equities.”
In terms of the best sectors to target when trying to tap into this, Baker points to automotives, real estate and financials.
“Automotive is cyclical sector which has been benefitted from an earnings upgrade. For example Peugeot, is illustrative of a turnaround story,” said Baker. The company is geared into the European recovery, car sales have been stronger than expected, operating targets have exceeded expectations and the company has seen improvements in its free cash flow.”
