May 18 2012 |
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Is crisis-hit Europe a place for investors?
Friday, May 18, 2012
London Fears of a worsening debt crisis in Europe look set to prolong volatility in equity markets, but following recent share price falls, some analysts see long-term value in large-cap European exporters, and the funds that invest in them.
“For those brave investors willing to accept high levels of volatility and possible shorter-term capital losses, buying now should represent an opportunity to access good quality stocks at attractive prices,” argues Patrick Connolly, certified financial planner with AWD Chase de Vere.
Research from Morgan Stanley suggests that European shares will provide a total return compound annual growth rate of 8 per cent over the next five years, based on a forecast 4 per cent annual increase in earnings. Even this estimate has them trading on no more than 12-13 times earnings — below average price/earnings ratio for the Euro Stoxx 600 index in 2011.
Tim Cockerill, head of collectives research at Rowan Dartington, believes that some euro earnings will be stronger than others. “If a company exports mainly to Germany, then they won’t be affected as much as a company exporting to Greece.”
But for Mike Lenhoff, chief strategist at broker Brewin Dolphin, the best shares and funds will be those focused well beyond domestic markets. So, “European exporters and overseas earners should do well, especially with a more competitive exchange rate, and this should help to offset any exchange rate loss to a sterling investor.”
Prices and exchange rates are expected to remain volatile, though. “Stock markets hate uncertainty and until we know how this will play out, there will be downward pressure on markets,” warns Connolly. For this reason, Sheridan Admans, of broker The Share Centre, advocates building holdings gradually. “These stocks are cheap for a reason and drip-feeding may be the more prudent approach,” he says. He recommends the BlackRock European Dynamic fund and the Standard Life European Equity Incomefund.
By Matthew Vincent
© Gulf News 2012. All rights reserved.
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