UK - Renewed investor confidence and a surge in the euro will see European equities rally, fund managers predict.
The forecast follows a bullish outlook from the European Central Bank that the eurozone was headed for recovery which triggered a further rise against the US dollar.
Schroders specialist European equity fund manager Adriaan de Mol van Otterloo said on a price/earnings basis Europe offered “good value” compared to the US.
He said: “With 27 out of 34 sub-sectors cheaper in Europe than in the US, these markets offer great value.
“They are also attractive on an equity risk premium basis as government bonds are still range-bound at expensive levels.”
Apart from being relatively cheap, European equities were also attracting greater interest from investors, he said.
“International investors who are looking for a geared play into the global equity rally – which we expect to continue amid a recovery in global economies and profits – will be attracted.”
He added: “The domestic environment is also becoming more supportive, with confidence indicators ticking up. Exporters are benefiting from recovering demand overseas, which has so far more than offset the impact of the stronger euro.”
Britannic Asset Management agreed with the positive outlook for the asset class, and has increased its exposure to “above index” rate.
The firm said share valuations in Europe were more aligned with those in the UK and there were continued signs of an “embryonic recovery”.
However, fund managers agree firms in commodity-related sectors, technology, automobiles and capital goods will struggle if the euro continues to climb against the US dollar.
Otterloo said: “The Federal Reserve has made it clear that it is comfortable with the dollar’s continuing slide and we don’t expect a US rate rise until the end of the year.”
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