European fund managers are not targeting any particular sector because Europe, like the UK, is curre...
European fund managers are not targeting any particular sector because Europe, like the UK, is currently lacking direction.
Jamie Sanderson, director of the Continental Europe fund at Edinburgh Fund Managers, says: "In the first part of the year, technology and media companies were doing well. Now there is difficulty in reconciliation good growth rates with the underlying valuations."
John Greenwood, chief economist with INVESCO International, says that telecom stocks began to suffer from concerns about the cost of third-generation mobile phone licences.
He says: "European governments have been looking to mobile phone licence revenues to add to the taxes in the wake of the buoyant economy."
However, telecom stocks are recovering on prospects of less competitive bidding for 3G licences as larger consortiums are formed. Meanwhile, growth in the mobile phone market has lead to an increase in profits for supplier technology companies such as Phillips, which reported an increase of 61%, helped by ongoing restructuring and cost-cutting.
The more traditional, less glamorous areas are not having a better time, says Sanderson, because brand building does not eliminate affordable pricing.
"As Unilever has discovered, people are no longer prepared to pay anymore for a product that they do not see as particularly better," he says.
The French, Spanish, Dutch and Irish economies have been particularly strong, with French consumer confidence at an all-time high, according to Sanderson. But he adds that the euro has nothing to do with the new boom as the UK has managed to sustain a strong economy without it.
However, Andrew Kelly, investment manager at Scottish Asset Management, said the euro zone currencies went through a prolonged period of weakness over the last two years and this has stimulated growth.
Last month, the European Central Bank (ECB) raised interest rates 0.5% to 4.25% and are warning of an inflationary outlook, following a 6.5% increase in EU producer prices.
Greenwood says statistics show that at 2% inflation remains at the top of the ECB's tolerance band. A link with the rise in oil prices has prompted long-term fears that year on year inflation measures could be flattened by deregulation of utilities.
With industrial production growing faster than expected, Sanderson expects a tightening on rates by the ECB to bring inflation below the 2% level. The oil sector is also doing well in Europe, reflecting the global picture. Oil stocks are benefiting from higher oil prices and the strong dollar.
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