Italian asset managers Anima and Azimut are prime examples of financials benefitting from earnings revisions, while Baker tips German real estate names like Leg Immobillen and Deustche Annington as being particularly well placed to benefit from a European recovery.
Schroders European equities manager James Sym also sees financials as offering an attractive opportunity at the moment.
“We are at a more normal valuation level in Europe at the moment rather than being super-cheap as we were before,” Sym said. “The banks are a natural beneficiary of lower interest rates because there are less defaults plus the pick-up in demand should come through into their top lines more.”
He said Spanish banks are particularly attractive given their gearing and improving dividend prospects. “They have got to the point where balance sheets are pretty healthy and they can use profits to reward shareholders,” Sym said.
Sym also believes that while much of the QE effect is already in prices, any indication that the programme will be extended beyond next September would likely trigger further upside across the asset class.
Old Mutual Global Investors’ European equities manager Kevin Lilley believes that while multiples in Europe have increased since QE came into being, many stocks are still cheap on a relative basis when compared with the UK and US because the European multiples are based on low earnings levels, which are set to improve.
The best sectors to harness the upside potential in Lilley’s view are once again financials, and others closely tied to the economy such as automotives like France’s Renault.
