Consumer confidence is looking strong in Europe and tax reforms are set to increase competition. Jo...
Consumer confidence is looking strong in Europe and tax reforms are set to increase competition.
John Surplice, European fund manager at Perpetual, says Europe is looking at a GDP of around 3.5% for 2000 and expectations for growth next year are below 3%.
He says: "Consumer demand remains robust and the cutting of corporation tax in Germany, Italy and France has freed up the supply side. We believe this is a positive long-term move which will increase earnings per share."
The European Central Bank has increased interest rates by 0.25% and there has been an effort to support the euro, which Surplice says has been good for markets.
James Elliot who manages the offshore Fleming Flagship European Equity and the Fleming Flagship European Technology funds, says: "The success or failure of the euro will depend on the future of the European economy."
At Chase Fleming the key issue is whether Europe is going to catch up with the US in underlying economic growth.
Elliot says: "Europe has lagged behind the US in supply-side reform, labour-market reform and investment in tech research."
He adds the lag has been most prominent in labour-market reform. Social security costs are 15-20% higher in Europe and wages are also higher, however, deregulation of telecoms and utilities has increased competition and productivity.
Elliot adds that German tax reforms have made it easier for companies to unwind their cross holdings without a tax charge. They now have much more available cash on board.
Chase Fleming sees enormous potential development in the equity markets from pension funds. Elliot expects there to be an increase in people taking provisions for their retirement and he expects this investment will go into the equity markets.
Elliot says there is a lot of scope in Europe for investment in early stage capital, especially in technology companies.
But Surplice says there have been profit warning concerns on mobile subscriber numbers and warns against technology, media and telecom stocks such as Intel and Motorola.
Instead Surplice favours luxury goods companies such as Gucci and Christian Dior because of good consumer confidence and earnings growth. He also recommends traditional defensive stocks and food producers such as Heineken.
James Anderson, fund manager of the Deutsche European Growth Trust at Deutsche Asset Management, says at the start of the year, telecoms, the internet and merger-mania caused a surge in the European market.
However, as time went by investors began to doubt the valuations given to technology-related companies. He says tech companies were being valued on high multiples, with no sign of profit for years to come while media companies were inflated due to untested assumptions on the value of content and potential revenues.
In telecoms, high prices for mobile take-overs and third generation licences have caused investors to doubt whether these companies would ever make a return, he says.
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