Europe stocks set to outperform U.S., UK
Continental European stock markets which have recently lagged are set to outperform the United States and the UK, with consumer stocks, financials and exporters leading the way.
Fund managers and analysts said the most growth will come from the German and French markets, with Credit Suisse expecting Germany to be the best play on global recovery.
The analysts said consumer stocks will gain from a rise in domestic spending, financials will be boosted in a virtuous circle of rising liquidity levels, and exports will do well as demand from emerging markets overshadows a stronger currency.
“The German DAX .GDAXI and French CAC .FCHI should outperform the UK and the U.S. equity market in the medium term,” said David Hussey, head of pan-European Equities at MFC Global Investment Management.
“Valuations on a range of metrics are more attractive and growth prospects are better, with greater demand for exports from emerging markets than for comparable U.S. companies. The consumer in continental Europe is generally less leveraged than in the UK and U.S. and housing is more affordable.”
On valuation grounds, continental Europe offers investors better value. On a forward P/E basis, it trades at a 8 percent discount to global markets.
So far, the French CAC and the German Dax have only risen 1.3 percent and 1.9 percent respectively this quarter, while the FTSE .FTSE, the S&P 500 .SPX and the Dow Jones industrial average .DJI have risen 4.1 to 7.1 percent.
CONSUMER TO SPEND
Although some economists expect U.S. GDP growth to outperform next year over Europe, Credit Suisse said leading indicators show U guaranteed approval cash advance loans.S. and European growth will be broadly at the same level.
However, lower household debt levels in core Europe than in the United States and UK will put the European consumer in a better position. European Cental Bank figures show 2008 gross debt outstanding is 94.1 percent of gross disposable income in the euro zone compared to 129.8 percent in the U.S.
“The European consumer is going to be stronger than the U.S. as the savings rates are historically higher, the debt levels are lower so they are starting at a better place,” said Hussey.
French shoppers defied expectations in September by spending more than they did the previous month on everything from cars to toasters and televisions.
“Consumer stocks can really do well really driven by domestic demand and financials as a geared play for the overall economy,” said Andrew Goodwin, fund manager of the SVG European Focus Fund at SVG Investment Managers.
Fund managers like financials because if there is to be a recovery, a recovery in the banking sector is set to drive it through the increased provision of liquidity to corporates and consumers.
Although analysts do not expect a complete consumption boom in Germany, they see much less downside risk than in other economies. They said it does not have the high debt levels and overheated real estate problems of other countries, so there is more potential for upside.