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Investing in western Europe
By Sonia Speedy
Prada, Christian Dior, BMW - western Europe is not only well-known for its sense of style, but for being home to some of the greatest companies in the world - offering an interesting alternative for UK investors. The economies of western Europe have seen ups and downs over the last few decades. Major political events such as the fall of the Berlin Wall and conversion to the euro have all taken their toll.
But while nations such as Spain and Ireland have seen boom times recently, it is interest in the more traditional values and regions that is drawing investors to western Europe today. Strangely, investing in European companies is a relatively new idea that has been slow to catch on with private investors, says Philip Pearson, partner at Southampton-based IFA P&P Invest.
"The stockmarkets of European countries are small compared to the two major markets, the UK and the US," he says. "Europe therefore provides the potential for greater investment growth than the matured UK and US stockmarkets."
In the early years of the new millennium, markets in western Europe struggled. "But we've seen quite a turnaround in recent years," says Gavin Haynes, managing director at Whitechurch Securities. "Particularly in the core European economies which, to an extent, drive the region - with France and Germany being the two big economies there," he says.
Building on the construction boom
Last year the Dow Jones Euro STOXX 50 index - which contains the 50 largest listed public companies in the euro area - saw growth of 17%, with growth of just under 9% this year to date.
While construction booms in countries like Spain and Ireland meant these more emerging economies were the drivers of performance in western Europe until recently, higher interest rates have turned the spotlight back towards western Europe's more traditional investment favourites - in particular Germany, with its solid background of manufacturing quality machinery.
Scandinavia also has some high performing companies, although its stockmarkets tend to be small and can be dominated by one firm or sector, such as oil in Norway or Nokia in Finland.
Meanwhile, Ian McCallum, chief investment officer at Bedlam Asset Management, says it is now steering away from southern Europe, putting greater emphasis on northern Europe. "Now that inflation globally is on the rise and also the supply of credit is going to get tighter and more expensive, the sectors and the countries that have done well over the last 10 years are going to reverse."
Europe leads the way
"The principal reason you would invest in Europe is because some of the world's greatest companies are European-based,' says Mike Parsons, head of UK retail sales at JP Morgan Asset Management. He points to examples including the Spanish Banco Santander, French and Italian fashion houses and German car manufacturers.
Stockmarkets in the region are also well regulated, with nations such as Germany relatively unburdened by the kind of personal debt levels seen in the UK. Companies can also offer good value. "If you're going to work on price/earnings ratios as a measure, you're buying the market pretty cheap at the moment compared to what you're paying investing in say Asia, China, America or Japan," suggests Gary Reynolds, chief investment officer at boutique fund manager Courtiers.
Haynes concurs. "One of the good things about the region is that, unlike the US and to an extent the UK, European markets are perhaps a little behind in the way they are researched, so it is possible for the fund manager to unearth good stock picking opportunities a little easier."
But, there are factors to be wary of. There are concerns over inflation, which means interest rates could continue to rise in Europe and Haynes also points out that if the US slows down; Europe is likely to feel the effects as the former is a key export market for western Europe.
"On the whole, it's quite a promising picture - earnings growth is still good and, like the UK, merger and acquisition activity has been pretty strong and valuations look fair," he adds. "We're positive regarding the strength of the core economies of France and Germany."
How to tap-in to the success
So, what's the best way of getting exposure to this vibrant story? The experts suggest that investing directly in individual stocks in western Europe requires expertise and makes it more difficult for private traders to achieve the diversification they need. A more common approach is to invest in collective funds.
While there are such funds that focus on a specific country within the region, financial advisers suggest looking for funds that invest more broadly - either across western Europe, or across the globe. Haynes favours the Artemis European Growth or the Neptune European Opportunities funds. For those looking for a more global spread he suggests the Artemis Global Growth fund.
Pearson too is a fan of the Artemis European Growth fund, along with the Fidelity European and Jupiter European funds. Meanwhile, for those wanting exposure towards emerging European economies Pearson suggests considering the Jupiter European Special Situations and the Fidelity European Opportunities funds.
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