European stock markets have been tipped to surge 15% by the end of the year by Stephanie Gerrard, se...
European stock markets have been tipped to surge 15% by the end of the year by Stephanie Gerrard, senior European Fund Manager at Aberdeen. With global markets off to a cracking start this week, such bullish views will no doubt gain credence.
Gerrard says recovery in the US has already been signalled by economic data and Europe should follow. Late last week Gerrard's outlook was ratified by some leading indicators - the US economy expanded more than expected in the fourth quarter and UK manufacturing recorded growth in February for the first time in a year.
If a US recovery is indeed underway (note the Standard & Poor's 500 enjoyed its best weekly advance in five months of 3.9% last week) Gerrard predicts Europe's ensuing recovery will be more impressive.
Gerrard, also manager of the Aberdeen European Champions Fund, said: "European equities remain very good value against bonds and against other equity markets, particularly the US. Continental Europe tends to act as a higher beta market (as it demonstrated on the downside) so any recovery should favour Europe on the upside too."
"Supportive valuations (particularly in Europe) and massive inflows of liquidity provided by central banks across the world make us optimistic that markets bottomed on September 21, 10 days after the World Trade Centre attack," added the fund manager.
The liquidity argument is a persuasive one - bear in mind the defensive positions so many investors adopted during 2001, taking shelter in bond and cash investments – if and when a recovery gains widespread credibility this money will likely be reinvested in equities.
Gerrard currently favours the cyclical areas of the market, where valuations remain supportive. She said: "In particular we emphasise basic industrials, autos, advertisers and temporary employment agencies. In contrast, we are steering clear of defensive stocks such as utilities, non-cyclical services, foods, pharmaceuticals and food retail."
"In addition to the theme of cyclical recovery, we favour companies geared to Europe's comparative advantage in industries, such as luxury goods, outsourcing, and high-end automotives. Restructuring is another important theme in Europe, and is already benefiting companies, such as Volvo, Valeo and Electrolux."
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