Europe and the US remain attractive areas for investment due to their perceived ability to provide s...
Europe and the US remain attractive areas for investment due to their perceived ability to provide surprises on the upside.
Europe's lagging restructuring process as compared to the US and UK markets is seen to offer the opportunity for companies to surprise, while US listed telecoms firms are seen as undervalued compared to their European counterparts.
Keith Mullins, fund manager of the Mercury Balanced Portfolio unit trust, says: "We have been more optimistic recently on the markets as a whole. It has all come down to a hard landing versus a soft landing for the US market. While the central forecast has been for a soft landing, the more time that has gone by without the economy decelerating, the more doubt there is. We are now beginning to see the right signals so our view has become more positive."
As a result of the uncertainty surrounding the US market, and consequently its knock on effect on other markets, the Balanced fund has been running high cash weightings. Since seeing signs of a slowdown in the US, the fund has moved to become more fully invested and now holds only 1-2% in cash.
Mullins believes the second half of 2000 is likely to be better performing than the first half and predicts most markets will perform well over the coming months. Europe is his favoured market as he believes it to be both tactically and strategically a good bet due to the restructuring of corporations there.
The UK is looking cheap as it has been dragged down by technical factors rather than market specific problems, he says.
Japan continues to recover but at an incredibly slow pace, and Mullins is less positive on the region as he does not see any immediate catalyst to drive up the market in the short term.
Neil Massie, fund manager of LeggMason Investor Global Growth fund, believes the UK offers good value at the moment but he is also quite keen on the US due to his thematic investment approach.
Favouring financials, pharmaceuticals and telecoms has lead Massie to take a positive view on the US market, believing there to be greater opportunities in these areas. He says: "We think the Fed is unlikely to raise rates again this year and we are expecting a soft landing. There have been encouraging figures recently and over the next few months we expect to see volumes to rise again. We are already seeing liquidity improving following the summer months."
While market development in telecoms is greater in Europe, the valuations of these stocks are quite high as compared to US companies, which is still developing, Massie says.
He adds "We like the UK market better over continental Europe as it is more transparent in terms of reporting and management structure. There are also better companies listed in the UK when looking at the themes we are following. We like stocks such as Glaxo and believe Lloyd's TSB still offers potential. Financials in the UK and US are better placed than Europe where the market is a bit more fragmented."
While not overly keen on bonds, Mullins says he does expect them to fare better than in recent months. The Balanced fund is neutral on government bonds as a whole.
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