Performance of the European market is repeating itself after almost a decade, suggests New Star Euro...
Performance of the European market is repeating itself after almost a decade, suggests New Star European Leaders fund manager Richard Lewis.
It happened almost ten years ago, and the European bonds market is now experiencing the same pressure as investors are putting their faith in cyclical recovery ahead of any actual earnings fundamentals to support current share prices.
Back in 1994-5, investors piled into "deep cyclicals" and are now moving heavily into technology.
In both cases, the market "is anticipating corporate recovery but ... is destined to be disappointed in the scope of the outcome," Lewis says.
Assuming that the present market conditions are a repeat of those previous times, then disappointment in the recovery of technology stocks should turn into better performance for other sectors, as investors move their assets elsewhere.
With that in mind, Lewis says there are good opportunities for turn-around stories in the banking, support services, and financial sectors. Companies such as Ahold (Dutch retailer) and Banco Comercial Portugues should benefit from a market turnaround, he says.
Even plodders such as Nestle and Unilever should benefit as investors look to stocks whose share prices are supported by some stronger fundamentals.
Lewis says he has sold down his technology holdings and remains underweight in utilities and basic industries.
He does not believe cyclical utilities will benefit from the cycle this time round, while the strong euro will hurt the chances of growing earnings by the Continent's chemicals, paper and steel makers.
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