For those that were not in a beach bar when the global equities rout began on 24 August, the traditionally quiet summer holidays rapidly became an exercise in picking up the pieces at cut-rate prices.
Almost a month on, while it is still no clearer whether there will be another stumble before markets are back on track, there are attractive stockpicking opportunities popping up in various parts of the market.
For Maria Municchi, investment specialist with M&G’s multi asset team, the stand-out region is Europe, and she has subsequently been upping her exposure as markets continue to slide.
She said: “The contagion effect from Black Monday has brought out some behavioural opportunities, and we have been taking advantage of some of those sharp falls in equity prices to add to our exposure in certain markets.”
Comparing Europe to its cross-Atlantic cousin, which is viewed as anywhere between fair and fully valued, depending whom you speak to, despite sluggish economic growth Municchi remains positive on the European earnings outlook.
“There are attractive opportunities in European equities,” she said. “There are very different earnings-per-share trail pictures in the US and Europe.
“In the US we have seen very strong earnings upside, which is now well above the 2007 peak. On the other hand, Europe is still trailing at very low levels, but recently we have started to see a pick-up in earnings which is encouraging together with the improving fundamentals.
“Europe is much more compelling as an investment on a valuations standpoint and from an earnings perspective regarding where those earnings can go.”
This sentiment translates into a 17.5% European equities weighting in the M&G Dynamic Allocation Fund.
However, while Municchi concedes that opportunities in the US equities space are somewhat sparse, she is still keen on certain sectors.
“There are still some opportunities in the US, but we need to be more selective,” she explained.
“One area of the market that we like is the banking sector, which offers value and diversification for our portfolios. On a price-to-book level, banks look very attractive on compressed valuations. Also, in terms of portfolio construction it has some interesting characteristics – it is quite correlated to the risk of increasing interest rates, and can outperform over time.”
