Don’t lose faith in European equities, investors told

Two fund managers have come out in support of European equities, despite the various economic and geopolitical problems in the region.

Firstly, exchange-traded fund (ETF) specialist Source said that it prefers European to US equities. Source research director, Andras Vig, commented: “Total return from European equities has been near zero over the year-to-date, as negative sentiment has offset decent dividend income and growth. While there are pockets of risk in Europe – mostly in banks – we believe the prevailing negative sentiment is not justified. Although some of the uncertainty will remain, there is enough growth to support equities in the region. In particular, we have also softened our negative stance on European oil and gas and have upgraded it to neutral.”

And Heartwood Investment Management, Jaisal Pastakia, said a number of factors are supportive for European equities, including improvements in the credit cycle and European bank balance sheets, as well as less focus on fiscal austerity. Pastakia commented: “Beyond the headline noise, however, the Eurozone credit cycle is key to European equity markets staging a recovery. As long as we continue to see ongoing balance sheet repair among European banks and improvements to the credit cycle, we believe these fundamental drivers should underpin European equity performance. Furthermore, given that valuations are now cheaper and it is a less owned market, these technical factors give us more comfort in holding an overweight position.”