Fund managers are taking a bias toward Europe on the back of strong corporate earnings. Stephen Dex...
Fund managers are taking a bias toward Europe on the back of strong corporate earnings.
Stephen Dexter, chief investment officer of the Putnam Global Growth fund, says: "We are overweight Europe and, in particular, are favouring the French and German markets, where we are seeing a recovery in consumer confidence. Home sales have also increased."
In France, Dexter favours banking stocks such as BNP Paribas and Société Générale because these groups are beneficiaries of higher consumer spending. In Germany he likes insurer Allianz because the group has been restructuring and cutting costs.
The stance at Standard Life Investments is also overweight Europe because of company cost-cutting measures. Richard Batty, global strategist for the group, says European companies are in good shape and should be able to survive a slowdown in the US.
Another area that global managers are positive on is Japan. Putnam is looking to increase its position to overweight from neutral, while Insight already has an overweight stance.
Dexter says: "We are moving overweight in Japan. Both the consumer and corporate spending are strong. Banks have been lending to large corporations as well as smaller businesses. We like banking stock like Mizuho. As a result of its rationalisation programme, the group has cut costs by reducing employees, which is improving profits."
Insight favours property stocks in Japan such as Mitsubishi Estate.
David Marchant, head of international equities at Insight, explains rents in Japan have been rising and capital values increasing. He says the company has been experiencing low vacancy rates and should profit from the positive property environment.
However, Standard Life Investments is neutral in Japan. Batty believes it is too geared into the global economic cycle as export sales are dependent on the US. For example, he notes PE valuations are at 18 times multiples compared to PE valuations in Europe, which are 12 times.
Elsewhere Standard Life Investments, Putnam and Insight have decided to underweight the emerging markets. Batty says: "Liquidity has been tightened globally, interest rates are rising and liquidity is withdrawing. As the emerging markets is considered a risky place to invest, it is unlikely investors will continue to put money in this situation."
Marchant agrees, and believes higher valuations for companies in the emerging markets, while corporate governance remains poor, means there are added risks for investors.
Although Dexter is underweight Asia because emerging markets have already performed well, one stock he likes is telecommunications group China Mobile. Dexter believes the company is cheap because it did not meet market expectations for new subscribers, despite achieving double digit growth globally.
Dexter is neutral in the US, but with interest rates at 5.25% challenges remain. He says: "The housing market has been deteriorating because of higher rates. Although housebuilders appear cheap, we believe their earnings estimates are too high and it is too early to buy."
Rather Dexter prefers US defensive stocks such as Northrop Grumman because the government is increasing its spending in this area.
Contrarily, Standard Life Investments' strategy is to overweight the US. Batty is positive on consumer staples and consumer discretionary stocks because these areas are not be related to an economic slowdown.key points
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