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THE INVESTOR
analysis
europe
birds ofa feather
Despite uneven growth in the eurozone and continued negative
headlines, the performance of continental stock markets has seen
global investors flocking back into European equities
T
he news out of Europe
continues to make grim
reading. Economic growth
across the eurozone is weak
and unevenly distributed.
France, the region’s second-largest economy,
slipped into negative growth during the
autumn, while its high-spending socialist
government caused its sovereign rating to be
taken down a notch by credit rating agency
Standard & Poor’s.
Unemployment in parts of southern
Europe remains unacceptably high at 25%,
with youth unemployment above 50% in
Spain and Greece. Inflation at 0.7% is way
below the European Central Bank’s (ECB)
target rate of 2%, prompting fears of a
deflationary spiral and calls for the bank to
do more in the way of monetary stimulus.
And yet, judging by the recent
performance of continental stock markets,
the eurozone is not doing so badly after
all. During the 12 months to December,
the FTSEurofirst 80 Index of the largest
companies and the broader FTSEurofirst 300
Eurozone Index generated total returns of
23.3% and 24% respectively, outperforming
the main indices, such as the FTSE 100
and Dow Jones, in both the UK and North
America
1
.And now that it seems to have
overcome its existential crisis, the euro has
proved remarkably strong, thereby providing
comfort to external investors.
As a result, global investors have
been piling back into European equities.
According to a recent survey by Bank of
America Merrill Lynch and data provider
EPFR Global, inflows to European equity
funds represented nearly 4% of all assets
under management (AUM) between
September and November 2013, while US
stock markets drew inflows of just 0.1% of
total AUM – the largest difference in Europe’s
favour since the financial crisis began
2
.
Stuart Mitchell, founder of S.W. Mitchell
Capital, which manages the St. James’s Place
Continental European fund and co-manages
the Greater European Progressive fund,
has noted the growing interest of US fund
managers in Europe. Indeed, the value of
their holdings in Europe’s 10 largest publicly
listed banks increased by nearly 40% to €33
billion between June and September 2013
3
.
‘The challenges facing Europe are
significantly less than those faced by either
the United States or Britain,’ says Mitchell.
‘Across the eurozone as a whole, the ratio
By Jonathan Gregson
