Despite bullish long-term prospects, some managers are predicting a slow second quarter for indices,...
Despite bullish long-term prospects, some managers are predicting a slow second quarter for indices, with the notable exceptions of Switzerland and Ireland.
In its equity strategy report for April, Salomon Smith Barney forecasts 14% annual returns for the Irish ISEQ, and a rise of 13%, in the Swiss SMI.
These figures are not outstanding from the perspective of predicted double-digit returns on Austria, Belgium, Denmark, Finland, Norway, Portugal, Spain, Sweden, and the UK. However, Salomons think none of those markets will show strong returns until later in the year.
Patricia Maxwell-Arnot, head of European equities at Credit Suisse, agrees the long-term case for Europe remains bullish but is less optimistic about Ireland and Switzerland for the long haul.
Maxwell-Arnot says: "I think in the longer term Europe looks fine because the flow of money into European equity will continue, and equity ownership is still relatively low compared to the UK and US.''
She expects Europe to suffer no more than temporary setbacks in the wake of the US correction.
The only risk Maxwell-Arnot sees is sectoral with tech, media and telecom stocks remaining the highest risk.
It is partly because of the attraction of tech, media and telecom earlier in the year that Switzerland and Ireland, which are both light in tech-stocks, have the brightest short-term prospects.
She says: "Switzerland and Ireland will do well in this quarter because they have the least downside of the European markets.
"I do not think they have a huge amount of upside either and I have seen nothing that would trigger an upgrade in that. People are beginning to turn towards sectors that have not been in favour like banking and pharmaceuticals."
That position is reflected in an over-weighting in pharmaceuticals in the Credit Suisse European Fund.
The portfolio has no exposure in the banking sector, which is strong in both Ireland and Switzerland, as Maxwell-Arnot believes they have not yet faced up to the internet revolution and there are too many players in the market.
Ken Baksh, associate director for Europe at Legal & General, and head of the European desk, agrees Switzerland and Ireland are likely to produce positive movement in the next four months.
He says: "There is a case for broadening out the portfolio and looking to parts of the old economy which have been negative. This is where markets like Switzerland, which is full of drug stocks and financials become popular. Similarly, there are some well-managed, non-tech companies in Ireland, which represent a big chunk of the Irish market.
There is a bit of value to be had in these markets and also a bit of catch-up."
He also sees a good macro-economic background to Europe in the coming year.
However, he predicts a lot of volatility and sees a question mark over whether the tech story will not continue to dominate investors' psyches.
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
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