Q4 could surprise on the upside, says BlackRock’s Bolton

A slowdown in China is to be expected, but not a hard landing, meaning expectations on European equities are now too pessimistic, according to BlackRock’s Nigel Bolton.

Q4 could surprise on the upside, says BlackRock’s Bolton

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“We believe that favourable credit conditions – together with some additional profit margin normalisation and subdued wage growth – could help boost European earnings,” said Bolton, head of European equities at the firm.

Regarding the prospects for Q4, Bolton explains that while China remains a key concern for investors, some improvement in areas such as retail sales and house prices combined with the potential policy responses, should help the economy regain some momentum.

“We started 2015 with reasonable US growth and a tick-up in economic momentum in the eurozone and Japan. However, as the year progresses, concerns about China, emerging markets economies, Federal Reserve policy and overall global growth have risen, making investors increasingly nervous,” he added.

The main concern that has grasped the market since the summer has been the economic slowdown in China, according to Bolton. However, he said that the members of BlackRock’s European team who travelled to China on research trips feel that there “may have been something of an overreaction to the news coming out of the country.”

Secondly, with the likelihood of further incremental support from the European Central Bank through expansion of the current quantitative easing programme, domestic growth in Europe should remain underpinned – a positive factor for European equities, said Bolton.

Finally, when compared to other developed regions, on a relative basis, European equity valuations look attractive. “Valuation is never enough to support a stock or a market in the short term but on a long-term view, it can offer significant opportunities. The recent market sell-off was indiscriminate across sectors and regions and therefore provided opportunities for active fund managers,” said Bolton.

Furthermore, in a low yield environment European equities continue to offer attractive dividend yields, but stock selection remains key during this period of increased volatility and risk aversion, he concludes.

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