Investor sentiment to Europe has been improving this year, though the market has been slightly overs...
Investor sentiment to Europe has been improving this year, though the market has been slightly overshadowed by attention given to stock market volatility.
Craig Heron, senior research analyst at Edinburgh Fund Managers says: "Sentiment to Europe has improved in the past few months. People are generally comfortable having a reasonable percentage of their portfolio invested in Europe. In August, just over £300m went to European unit trusts, the second largest inflow across all sectors behind the US."
John Hatherly, head of global analysis at M&G says: "Until August retail investors were getting very enthusiastic about Europe because it had been a consistent outperformer compared to the UK. Europe almost became the latest market fashion as people became aware of its potential. Ironically this was happening just as the general public was becoming more hostile to the euro."
Hatherly says interest in Europe has increased as European companies have changed the way they do business.
He says: "They have cut costs, restructured their businesses, gone for acquisitions and given priority to shareholder value."
Parallel to the change in company behaviour has been the development of an equity culture in Europe.
He says: "This is very convenient for companies and governments because they are making increased use of the stock exchange to raise money. We are seeing increasing new issues and IPOs and we have the prospect of continuing dramatic change and growth in European equity markets from a low base."
Heron says the number of mutual fund sales in Germany has gone up 60% in the past four years. According to the IMF, projected pension expenditure, as a percentage of GDP, is predicted to be approaching 20% in Germany and France by 2030, more than 20% in Italy and less than 5% in the UK.
"Increasingly, equity ownership is a big theme in Europe so lots of funds are increasing their exposure to financials, especially asset gatherers," Heron says. "Also, most fund managers this summer concentrated on moving to defensive areas because of the technology battering."
Heron says that while there has been a general improvement in sentiment to Europe this year, he has noticed a mellowing of enthusiasm among investors due to the weakness of the euro.
He believes European companies may not invest in the American market in 2001 to the same extent as they did this year, which may be a catalyst for the euro to strengthen. Hatherly says: "The euro is a double edged sword for investors.
"One reason European economies have been growing so strongly has been that the weakness of the euro has enhanced their competitive position. However, if the investor is based in the US or UK they will suffer a dilution of benefits in currency translation, so if the euro rallies a bit they will get some benefits back."
Hatherly says as the introduction of the euro has removed currency risk from investors, geography is becoming less relevant to their investment decisions, with pan-European investing becoming the norm.
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