In Europe the main focus for fund managers has been the switching between the new and old economy st...
In Europe the main focus for fund managers has been the switching between the new and old economy stocks. Stuart Gilmartin, European fund manager for SGAM, says: "The switching has been driven by Nasdaq. If there are good figures in telecoms in the US, Europe usually follows."
However, Adrian Fowler, fund manager for Aberdeen European portfolio, says: "We are cautious about valuations for high growth sectors such as technology, media and telecom stocks. They are broadly overweight in the market and it is difficult to see why people are going to put more money into these sectors."
Fowler prefers old economy stocks and expects to see growth in the defence sectors rather than technology.
He adds: "The defensive sectors such as food and drinks, pharmaceutical, financials and utilities are far more predictable to invest in, as everybody needs to eat and drink.
"On a macroeconomic level Europe looks reasonable and is progressing well. GDP is expected to be about 3.5% for this year and around 3% for next year, which is good in a global context. Inflation has picked up, and rates are liable to rise in the course of next month. Inflation is above the targeted level and needs to respond to the weakness of the euro. Central banks need to act and have indicated that they may move rates after the summer, which may help the currency and appreciate the euro," says Fowler.
However, Gilmartin believes that although inflation is causing a headache with the European Central Bank, it should not have too much of an impact.
Gilmartin adds: "Europe has been attempting to reduce regulation. In Germany, tax has been reduced on both a personal and corporate level. Corporate companies such as Allianz which have been selling off their holdings can now do so without having to pay capital gains tax."
He believes there is still potential for corporate restructure, mergers are rising and more companies are selling off assets. Firms are under increasing sensitivity to overseas takeovers.
Fowler says: "European corporates, new firms and flotations of divisions, have acted as a natural break for the markets."
For Europe there have been a 5%-10% gains in the stoc market this year. France has had strong growth prospects as companies are focusing on exporting and growth prospects look good for the financials, technology and pharmaceuticals. While there has been an overweight position in the Denmark market in service outsourcing, telecom and technology.
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