LONDON — Mainland Europe represents an underexploited and potentially lucrative opportunity for investors, according to the head of equities at JPMorgan Asset Management.
JPMAM’s global equity chief Paul Quinsee told Business Insider that while Europe is currently “the most out-of-favour region of all global equity markets,” there are many reasons to be optimistic about the state of continent’s stock markets.
Quinsee oversees roughly £280 billion ($US350 billion) of clients’ assets, out of a total of JPMAM’s £1.4 trillion ($US1.7 trillion) assets under management.
Europe is currently being ignored by big sections of the market because of one simple thing. Politics.
Europe’s political situation remains hugely uncertain. For starters, no one knows exactly how Brexit negotiations will play out, and what exactly the implications of any Brexit deal will be.
Add to that uncertainty about the French presidential election, in which far-right, anti-immigration candidate Marine Le Pen stands a small chance of victory, as well as the possibility that Angela Merkel will lose her place as Germany’s chancellor later in the year, and Europe’s political waters are muddy to say the least.
Look beyond that huge political turmoil, however, and the fundamentals of Europe’s markets are better than they have been for many years.
Quinsee says (emphasis ours):
“Global investors seem to have largely lost interest in the region, deterred by poor profitability and the seemingly endless political uncertainty over the future of the European Union. Here we see opportunity; despite the politics, European economic growth is improving, and the region’s companies will also benefit as the global economy reflates. Additionally, financial stocks are still undervalued, with prices not yet reflecting improving returns, a recovery in loan demand and the likelihood, in some instances, of substantial return of capital to shareholders.”
Quinsee’s argument is backed up by recent data. Just this week the unemployment rate in the EU dropped to its lowest level since 2009, and new PMI released on Wednesday suggested that the first quarter of 2017 was the eurozone economy’s best since 2011.
Not only is the general economic picture improving, so too is the picture for corporates operating in the continent. European companies have been struggling for meaningful earnings growth in recent years, but that finally looks to be changing, Quinsee adds.
“The real problem for Europe has been a lack of earnings growth,” he says.
“The same movie has played out in each of the last several years — the year starts out with investors expecting European earnings to grow by 10% and then they actually end up shrinking.”
“Finally now however we really do think this time is different and we’re turning a corner. When tangible growth is finally delivered, that should lead to some of that risk premium being delivered back.”
These two factors combine to make Europe an incredibly attractive prospect right now, especially considering the widespread belief that equities in the USA are currently substantially overvalued.
“With higher prices at home for US based investors, it’s going to pay to start looking further afield,” Quinsee finished.
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