European equities continue to fall, with only the tobacco index returning positive results for the y...
European equities continue to fall, with only the tobacco index returning positive results for the year to the end of September.
The Bloomberg European 500 index is down 23.03% for the year to 28 September, while the tobacco index is up 18.33%, both in euro terms.
At the individual stock level however, retailers Marks and Spencers seem to be faring well, with the top-performing stock over the year rising more than 60%.
Charles Nicols, economist with Schroder SalomonSmithBarney, says that in the current climate, non-food retailers are likely to continue to outperform much of the market. However, others will be greatly affected by the events of 11 September. He says: 'As yet, the full implications are difficult to assess. Initial feedback from retailers suggests that the immediate reaction of consumers has, to date, been relatively limited.
'However, with global growth now expected to be very modest in 2002, there is likely to be a marked effect on confidence, employment and spending. While we anticipate a slowdown, this will be offset by monetary easing.'
This easing, Nicols notes, along with limited direct exposure to the US, should support non-food retailers, particularly those with defensive characteristics.
Those companies the group favours in the near term include Next, Matalan and H&M. Over the year to 28 September, Next has returned 13.20% in sterling terms and H&M has gained 13.61%, while Matalan has fallen by 31.97%.
Nicols says: 'There is a need to build portfolios around high return, well-managed businesses capable of sustaining growth in more difficult times. These companies in particular look capable of strong progress in tough times and offer growth thereafter.'
Despite Marks & Spencer's outstanding performance year to date, Nicols says he is turning cautious on the stock as the lack of progress in the company's revenue in good times raises concerns about its risk profile in a slowdown.
Gartmore believes the European market has proved to be relatively resilient following September's terrorist activity, reflecting the maintenance of a strong growth in personal consumption.
However, Fidelity's view on Europe has turned down following recent events. The group believes the outlook for economic growth in the eurozone has worsened, although it still sees opportunities on a stock specific basis. Consensus GDP growth estimates for 2001 have been revised down, business confidence has weakened and exports have slowed, according to Fidelity's European fund manager Anthony Bolton.
The IMF has lowered its forecast for eurozone economic growth in 2001 to 1.8%, from April's forecast of 2.4%.
Consumer confidence has also suffered, given a downturn in employment growth and the climate of uncertainty following the terrorist attacks in the US.
Bolton says: 'Volatility is likely to remain a feature of the markets amid the uncertainties over the economy and political events.'
Non-food retailers should outperform.
Weakness offset by monetary easing.
Market proving resilient.
Confidence could deteriorate.
OUtlook for eurozone growth has worsened.
Exports may continue to slow.
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