Baring Asset Management believes Europe's restructuring phase is largely over and that a period of g...
Baring Asset Management believes Europe's restructuring phase is largely over and that a period of growth is imminent, writes Ruth Alexander.
Neil Robson manager of the offshore Baring Europa Fund and the Baring European Growth unit trust, said labour market reform and deregulation are helping to boost the potential growth rate of the European economy.
He said the Continent needed to put its resources back to work and the decline in a relatively high level of unemployment is an example of this. According to Robson, the Netherlands is the model example of this trend having had 2.9% GDP growth over the last year, compared to Europe's 1.9%. If successful, the potential growth rate of Europe could rise to between 3.5% and 4% in the future.
Robson said: "Europe has been in a restructuring phase for the last five years, with the capital base being rationalised and improving returns on capital employed. Now it must prove it can grow. At present, 80% of companies are beating the cost of capital."
Robson, who is also head of the Europe Equity Specialist Investment team at Barings, said: "As economic growth is no longer accelerating, we believe that earnings growth will become a rarer commodity over the next 12 months. Our focus is therefore on areas of secular growth. "Three areas of the market in particular stand out: savings and capital markets, service and technology. All three offer growth rates significantly above the market average and the potential for rising expectations."
The life and pensions sector has been identified by Barings as a key driver of growth going forward. Among the stocks Robson holds is San Paolo IMI, which has a 17.5% share of the Italian mutual fund market with assets under management growing at 20%pa.
Robson favours the service sector and said it is showing growth rates, which are twice that of GDP. In particular, Robson highlighted the success of Adecco, the number one company in eight of the world's largest markets, which he believes could potentially achieve sustainable growth of 15%pa.
Technology will stay strong, according to Robson. He said Europe is building its capital stock of investment and technology. He added: "Ericsson has been the number one company in the second generation mobile market. The third generation infrastructure market is worth more than $150bn. Ericsson is trading on 37 times forward earnings despite handset losses."
The Baring Europa fund has returned 37.7%, on a bid to offer basis, over three years to the 27 September 2000, and is ranked 36 out of 42 funds in the offshore Equity Europe sector. The Baring European Growth Trust has returned 47%, on an offer to bid basis, and is ranked 60 out of 91 in the Europe ex-UK sector over the same time period.
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