Pa­tient back on his feet

Eco­nomic re­cov­ery boosts mar­ket con­fi­dence

Finweek English Edition - - Offshore investments -

TWO YEARS AGO, Europe was deemed a great dis­ap­point­ment, with Ger­many in par­tic­u­lar writ­ten off as “the sick man of Europe”.

A low point was the con­sti­tu­tional cri­sis trig­gered by the French and Dutch ref­er­en­dums, which was a blow to Eu­rophiles and em­bold­ened Euroscep­tics. The Euro­pean Union was seen to be in de­cline or dis­ar­ray, and in des­per­ate need of demo­cratic re­form.

Forgotten, of course, was a decade of im­pres­sive in­te­gra­tion, with a sin­gle mar­ket, sin­gle cur­rency and en­large­ment.

Andrew Mo­ravc­sik, pro­fes­sor of pol­i­tics at Prince­ton Univer­sity and se­nior fel­low at the Brook­ings In­sti­tu­tion, said: “The mis­take had been to up­set this prag­matic ar­range­ment with an ide­al­is­tic scheme for greater de­lib­er­a­tion and high-profile con­sti­tu­tional re­vi­sion, which was then over­sold to the Euro­pean pub­lic”.

In short, most Euro­peans didn’t want am­bi­tious quick fixes. They were gen­er­ally con­tent with what had been achieved and sought a re­turn to the pol­i­tics of quiet, in­cre­men­tal re­form.

Though still pretty com­plex, the pol­i­tics of Europe have sobered some­what since 2004, the econ­omy has im­proved dra­mat­i­cally, and this has been re­flected in the mar­kets.

The Euro­pean Com­mis­sion is look­ing to real eco­nomic growth this year of 2,4% (slightly down on last year’s 2,8%, which was the high­est since the start of the decade).

The Ger­man and French economies are look­ing con­sid­er­ably health­ier, with growth rates at around 2,6% and 1,9% re­spec­tively. High fliers in­clude Swe­den 5,1%, Spain and Aus­tria 3,6%, Switzer­land 3,2% and Bel­gium 3,1%. In­fla­tion has hit its low­est level in seven years.

Ma­jor driv­ers are a sen­si­ble mone­tary pol­icy, a buoy­ant cor­po­rate sec­tor, strong ex­ports, and greater labour flex­i­bil­ity in coun­tries such as Italy and Spain. The re­cent en­large­ment of the EU has also pro­vided ac­cess to a mas­sive pool of labour and capi-

tal. The Baltic coun­tries, for in­stance, are grow­ing at about 8% a year. This is not only the re­sult of ac­ces­sion but also sim­pler tax sys­tems, lower reg­u­la­tion and smaller pub­lic sec­tors.

In last month’s “Rag­ing Bull” awards, the best off­shore Europe gen­eral eq­uity fund was the Aviva Funds Euro­pean Con­ver­gence Eq­uity Fund, which has gen­er­ated a 62,2% re­turn dur­ing the past year and av­er­aged 46,33% an­nu­ally over three years.

Other im­pres­sive per­for­mances were by Aviva Funds Euro­pean Prop­erty Fund, which gen­er­ated 75,08% for 12 months, In­vesco Pan Euro­pean Small Cap Eq­uity 63,7%, In­vesco Pan Euro­pean Struc­tured Eq­uity 53,59%, Bar­clays In­vest­ment Funds (Lux) Euro­pean 51,55%, Stan­lib Off­shore Euro­pean Smaller Fund 51,54%, and Ash­bur­ton (Global) Euro­pean Eq­uity 51,53%.

Sev­eral lead­ing in­ter­na­tional an­a­lysts be­lieve Europe is still good value. This is shown in the price:earn­ings ra­tios: Nether­lands 12,5, Ger­many 14,1, UK 14,2, Hun­gary 14,5, Bel­gium 14,7, Swe­den 15,1, France 16,1, Ire­land 16,6, Nor­way 17, Rus­sia 17,2, Aus­tria 17,3, Italy 17,6, Fin­land 17,7, Den­mark and Poland 19, Switzer­land 20 and Spain 22,1.

Con­fi­dence in the Eu­ro­zone also re­mains high. Ger­man, French and Dutch busi­ness con­fi­dence in par­tic­u­lar has bright­ened markedly. This has in turn spurred fur­ther merger and ac­qui­si­tion ac­tiv­ity and gen­er­ated pos­i­tive cor­po­rate news­flow.

A con­sid­er­able amount of money is also find­ing its way into Euro­pean mar­kets from the US and Gulf States. The Amer­i­cans are heav­ily en­gaged in private eq­uity deals, while Arab in­vestors with “petrodol­lars” de­rived from oil ac­tiv­i­ties are find­ing Europe in­creas­ingly at­trac­tive, out­strip­ping their in­vest­ment op­por­tu­ni­ties at home.

An­a­lysts say the strong in­ter­est in Euro­pean com­pa­nies is not a de­lib­er­ate move away from the US. The bias to­wards Europe is rather that there is more op­por­tu­nity to make money.

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