European equities ‘in line for rapid rise’ if risks abate
INVESTORS have taken such a defensive stance on European equities amid trade wars, Brexit and recession risks that a rapid rise could be on the cards if things turn out for the better, suggests Fidelity Investments.
“It could be the breeding ground for quick equity market gains if we see that the situation is not as bad as many have positioned for,” Christian von Engelbrechten, a portfolio manager, said in Frankfurt.
He oversees €1.1bn of assets, including the Fidelity Germany Fund.
Engelbrechten is positive on German equities. As the economy cools, stocks are supported by valuations in line with the historical level, an average dividend yield at 3pc, and solid balance sheets and cashflow, he said. To play it safe, he looks for firms that can grow independently without a strong macro environment, due to innovation, new products and increasing market share.
He favours software giant SAP for its recurring income, Fresenius Medical Care for its non-cyclical business model, and Airbus, to benefit from increasing air traffic.
Sectors like steel and automotives remain difficult, given their inability to structurally grow profits, he said. But he is overweight on Porsche Automobil Holding SE because of its relative valuation.
On the basis that there will be some SinoUS trade agreement and a global economy growing by 2pc to 3pc next year, profits of German companies could grow by 5pc to 6pc, he said. With the dividend yield, it gets close to 10pc. “I like to be positive and think that neither the US in the election year 2020 nor China during the 100-year anniversary of the Communist Party in 2021 would like to see their economies in recession,” he added.