thames river fund manager tony zucker is cautious on the outlook for continental stocks
Thames River's European fund manager Tony Zucker is predicting European corporate earnings could be down by as much as 10% this year and flat for 2002.
Zucker, whose fund is offering a 1% discount until 15 November, said this represented a realistic view of the future growth prospects for Europe.
He said his view is slightly more pessimistic than the market consensus but points to the fact a number of investment banks are now being forced to downgrade their earnings forecasts
Zucker said: 'European economic growth has slowed down quite considerably. Earlier in the year, analysts had been predicting that corporate earnings would be around 7% to 8% higher than last year. There could well be a turnaround to a 10% decline instead.
'As far as a potential earnings recovery goes, I think that next year, earnings will be flat.'
This should not come as a total surprise, he continued, as the background is one of slowing GDP growth, with analysts issuing increasingly bleak forecasts since the start of the year.
As a result, the European fund's portfolio is heavily weighted in large caps as he feels the blue chip arena is much more likely to be able to withstand an economic downturn in a much more resilient manner.
Zucker said: 'Within this, we've overweighted sectors with more dependable earnings projections, such as pharmaceuticals and food retailers.
'There is a more consistent, less cyclical demand for the products these sorts of companies sell. For the same reason, we're also very cautious about technology, media and telecommunications, which have been vulnerable to earnings disappointments.'
He added that he would wait for changes in the leading European indicators before altering his weightings dramatically.
Once indicators such as the National Association of Purchasing Managers indices, which shows purchasing managers buying patterns, start to move positively, he aims to increase his technology, media and telecommunications holdings.
Another area which would start to look interesting under these circumstances is financials. Zucker said: 'I also think there is scope for the ECB to ease the downturn by further reducing interest rates later this year. Despite the fact the ECB cut 50 basis points off the rate following the terrorist attacks in the US, inflation cannot really be seen as a threat at the moment. Oil prices are falling, there is downward pressure on wages and the euro has strengthened relative to the dollar.'
Thames River sales director Edward Morse said the group is offering the discount on the Dublin-based Oeic sub-fund to highlight its outperformance in comparison to sector peers.
Three-month cumulative returns to 3 September 2001 showed the fund to be in second place in its sector, down 3.6% against a sector average of -8.02%, on a mid to mid basis.
Over one year, it was ranked third in the Offshore Equity Europe Ex UK sector, returning -18.86% to investors against a 34-strong peer group average return of -24.61%.
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