european fund manager at artemis is gloomy about prospects for european equity markets
Peter Saacke, European fund manager at Artemis, is bearish about equity market prospects in the region.
'If I had the choice of putting my own money into either the Dax, Cac 40 or FTSE 100, I wouldn't think twice about putting it into the FTSE,' said Saacke, who co-manages the Artemis European fund with Philip Wolstencroft.
Although he did not expect good performance from the broader European market, he expects money can be made from European equities by exploiting economic divergence.
'Contrary to all the talk of European integration, harmonisation and stimulation of the business cycle, what is actually happening due to the one-size-fits-all monetary policy is that economic activity is diverging,' he said.
While countries like Austria, Belgium, Italy and Germany had less than 1% GDP growth over 2002, hot areas included Hungary and Ireland (both 3.4%), Greece (3.1%) and Spain (1.9%).
'A good thing about investing in Europe is that you can get exposure to these different strengths of economic activity. You can focus on the stronger countries and avoid the weak,' he said.
A particularly exciting development was EU enlargement. He said rather than waiting until 2004 when further countries are included in the EU, he is finding opportunities now.
'There are strong opportunities. Hungary's OTP Bank for example has just reported a 57% yearly increase in profits and it is trading at a P/E of nine times. I think it is a winner,' he said. Saacke added there is another aspect of the EU enlargement story that can be positively exploited in that it will be easier for European countries to move their production activities into these cheaper eastern areas. This obviously has cost saving benefits, he said.
Meanwhile, diversification benefits offered a central case for investing in Europe.
'Over the long term you are likely to make similar returns to investing in UK equities. However, the chances of things going wrong in 20 countries at once are a lot smaller than going wrong in one,' he said. Europe is a particularly interesting opportunity for contrarian investors. He said investment trust discounts are a useful indicator in gauging country sentiment. Currently, and for the first time in 20 years, discounts on European investment trusts are wider than for that of UK investment trusts.
'This shows that if you want to be contrarian, Europe is the place to be,' he said.
The Artemis European Growth fund's philosophy centres around choosing 50 stocks that will be top performers, rather than tracking any index. This involves the daily scrutiny of 2,000 stocks via the firm's proprietary Smartgarp database system.
Smartgarp updates individual stock performances daily, analysing them for value, growth, estimate revisions and general momentum. The managers will then choose from the short list this system produces.
Over 12 months to 19 May, the £67m fund is ranked third out of 107 in the Europe ex UK sector. On an offer to bid basis it returned -15.25%, outperforming the sector average of -24.6%.
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