The European auto and transport sector has been a good performer despite structural over-capacity, a...
The European auto and transport sector has been a good performer despite structural over-capacity, according to Raj Shant, head of European equities at Newton.
The sector has returned 16.62% in the year to 18 March 2002, despite the knock-on effects of 11 September, says Shant.
'This is surprising as there were less people reported to be on the roads and a distinct decline in travelling,' he says.
According to Shant, the reason autos have performed well is that people have become more optimistic since economic indicators have begun to pick up.
He says: 'It is clear that the outlook last year was too negative. Some key European players have already gained market share in the US, which is a strong move. New car models and the strength of the dollar have made it easy to sell into the US.'
Ann Steele, senior fund manager at Gartmore, says strong consumer spending has bailed the sector out but if interest rates begin to rise faster than expected there may be a slow in spending.
She adds: 'Germany has been the laggard but France has kept up consumer spending and the UK is strong.'
Within autos, companies are expanding their capex and are rolling out new models. Steele is 3% overweight the sector and cites BMW, whose share price has soared 18.4% in the year to 23 March 2002.
She says: 'BMW has done well and has enjoyed huge sales in the US. The stock has broken out recently and there have been upgrades, leading us to believe it will continue to outperform. VW has also done well recently and Daimler is interesting due to its current restructuring. The projected figures for Porsche is encouraging for the release of its new Cayenne range.'
SchroderSalomonSmithBarney says that buying luxury consumer stocks may be premature, particularly in a sector that has performed so strongly.
However, the group says the Porsche case centres primarily on the arrival of a new product where returns are set to be high even on conservative volumes. To break even, the Cayenne model only has to sell 5,000 per year, which is a very low amount.
Within the transport sector, transatlantic airline traffic has suffered, says Shant, but has performed better than other markets.
He adds: 'Continental Europe does not have as much of an exposure to transatlantic traffic as the American airlines so has not suffered as much as expected.'
There has been a decline in the number of passengers and miles that are being travelled but, Shant says: 'The rate of decline is slowing and we are encouraged that this will return to normal by the end of the year. Rather than engage in vicious price wars, the airline companies have reduced capacity, which is a plus.'
Shant is neutral autos and transport and is unlikely to change this stance. He says: 'Share prices have benefited by the upward optimism and good news is factored in.'
Euro auto companies gain US market share.
Economic indicators picking up.
Consumer spending strong.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress