Bangkok--9 Feb--Aberdeen
European companies are oversold because on-going problems of theeuro and slow growth have put off investors according to Jeremy Whitley, Head of UK and EuropeanEquities at Aberdeen Asset Management (‘Aberdeen’), the global investor.
Speaking at a media luncheon at Conrad, Bangkok, Whitley elaborated on his theme saying Europe isunique in the number of home companies with franchises that offered global exposure. Many of theseare market leaders and have decades of investment behind them. With strong brands and patentprotection that makes them relatively immune to competition and able to plan for the long term.
He cited food group Nestle, pharmaceuticals company Roche and Swedish lock maker Assa Abloy asexamples of companies with operations around the world and relatively low revenues coming fromEurope itself. Many of his preferred companies have invested heavily in emerging markets.
Whitley is a fan too of European companies that supply and sell essential products that must bereplaced and serviced from time to time. This gives companies secure customers and pricing power.Examples include makers of jet engines, elevators and insulin.
What has held such companies back is the low level of consumer confidence in Europe amid signs ofdeflation. Whitley believes their competitiveness will improve because of cheaper oil and a weakerEuro. An improving credit cycle, meanwhile, is positive for demand.
He adds that European stocks are inexpensive relative to bonds and provide a steady earnings returnin the form of dividends. The decision by the European Central Bank to buy bonds sends a strongmessage that it will back stop markets. Although economic growth may remain subdued, the earningspower of the companies Aberdeen seeks to invest in is still strong and prospective returns attractive.
Jeremy Whitley, Head of UK and European Equities, summarizes:
“European equity returns in 2014 were unexciting as the market worried about slowing GDP growthand deflation. With the boost to margins from a weaker Euro, exporters should lead recovery. Ofcourse, there are big concerns over demand within the EU itself. Without structural reforms arecovery in jobs and spending is likely to be drawn out. But we are encouraged that in peripheralcountries such as Portugal, Ireland and Spain, where cuts in nominal pay have taken place, labourmarkets are starting to clear and spending is up. Investors remain bearish – too much so in our view– so we will be eyeing market volatility as an opportunity.”
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