11/04/2011
By Ilonka Oudenampsen
Sovereign debt concerns are misleading investors about the growth prospects for Europe, with institutional investors continuing to shun small and medium sized European equities despite the strong recovery of mature European economies, according to S. W. Mitchell Capital LLP, an independent boutique investment manager specialising in European equities.
Stuart Mitchell, founder and investment manager at SWMC, believes Europe should be viewed with a clear north/south divide, with the Northern core of France, Italy and Germany, offering exceptional value, and the Southern periphery, including Greece and Portugal, labouring under the burden of higher cost structures. This disparity ultimately misleads investors about the growth potential of Europe as a whole.
He said: “Despite continuing sovereign jitters, we draw a clear distinction between business and economic conditions in the southern periphery of the Eurozone, labouring under the burden of higher cost structures, and its northern ‘core’ tier. For the south currency devaluation is not an option, and it will see relative deflation, which will doubtless be painful.
“But the reverse of this is the prospect of rather better growth rates in the northern tier. This will provide a backdrop for northern European companies altogether more benign than that of the last year or two, further enhanced by the steep Euro devaluation relative to the dollar since the autumn of last year.
“Ultimately, and from our experience of meeting companies and investing in the region, we strongly believe European equities are currently exceptionally good value with many companies trading on a significant discount. Furthermore, equities currently pose a very attractive buying proposition compared to bonds and cash. While there are some concerns that various government austerity programmes may hinder or reverse the recovery, it should be remembered that policy makers, fearful of deflation, have shown themselves ready to do whatever they can to drive economic growth.”
Other stories you may find of interest:
A solution to the European sovereign debt crisis?
Europe is still negotiating to find a solution to the European sovereign debt crisis, but this will inevitably end in a messy compromise that fails to resolve the peripheral solvency crisis and merely prolongs the agony until the next stage, said Stuart Thomson, chief economist at Ignis Asset Management
Models indicate Euro breakup would bring 40% drop in equities
If the eurozone were to break up, the most favourable option would be for Greece to leave, while a complete breakup would have the most severe consequences, according to SunGard
Emerging Europe ripe for investment
Russia, Turkey and Poland offer structural growth opportunities in consumer-related sectors and infrastructure to investors, says Baring Asset Management (Barings)
