GO
Loading...

Europe Markets That May Be Worth Snapping Up

Sunday, 2 Jun 2013 | 10:09 PM ET
Good Opportunities in Peripheral Europe: Expert
Patrick Legland, Global Head of Research at Societe Generale thinks stocks in peripheral European countries are looking attractive given the improved outlook for their national budget deficits.

True, the outlook for the euro zone economy is not great, but there are plenty of good reasons why the euro zone's peripheral equity markets look appealing right now, one expert tells CNBC.

"It is too early to talk about growth, but what is interesting is that all the leading indicators we are looking at are currently touching a bottom and the risk of downside is low," said Patrick Legland, global head of research at Societe Generale, adding that he favored equity markets in the peripheral euro zone.

While foreign investors have piled into government bonds in peripheral euro zone countries such as Spain, Italy and Portugal this year as concerns about the debt crisis in the region ease, stock markets in those countries have broadly underperformed major equity markets.

(Read More: Spanish Bond Auction Flags Appetite for Peripheral Debt)

For instance, Spain's benchmark stock index is up 1.87 percent so far this year, while the pan-European FTSEurofirst 300 index has gained more than 7 percent. While Italy's stock market has rallied almost 6 percent and Portugal is up about 5 percent, they have lagged gains on major global markets. The S&P 500 is up 14 percent and the Nikkei is higher 33 percent even after heavy selling in May.

"We have seen peripherals make huge improvements in their budget deficits, secondly they are massively declining their unit labor costs and we are starting to see European companies re-positioning there," Legland told CNBC Asia's "Squawk Box," outlining reasons why he thinks assets in the euro zone periphery look attractive.

Michael Blann | Stone | Getty Images

Governments in the euro zone's smaller countries have imposed painful budget cuts in recent years, even as their economies are mired in recession, to get their budget deficits under control.

Spain's budget deficit has been cut to 6.98 percent of gross domestic product (GDP) in 2012 from about 11.2 percent in 2009. And Italy has been removed from a list of countries in the European Union with excessive budget deficits.

(Read More: Rajoy Sees Hope for Spain in Jobless Figures)

An index compiled by the Organization for Economic Co-operation and Development (OECD) released in March meanwhile showed that unit labor costs in Spain and Portugal have fallen below those in Germany, Europe's largest economy, for the first time since 2005.

Analysts say that a fall in unit labor costs in the smaller euro zone countries could be a sign of a rise in productivity that raises the appeal of corporates in peripheral Europe.

"We have many corporates trading below book value, a 40 to 50 percent discount to below book value in sectors such as construction and consumer [products], Legland said. "So don't get me wrong, I'm not saying the economic outlook is getting better, but from a valuation point, there is an opportunity there."

— By CNBC.Com's Dhara Ranasinghe; follow her on Twitter @DharaCNBC

Featured

  • Pro-Russian activists seized the main administration building in the eastern Ukrainian city of Donetsk.

    Deadly clashes in eastern Ukraine have spiked fears of all-out war in the region. So who are the armed, flag-waving rebels who appear to be behind it all?

  • An employee wipes a TV screen in a shop in Moscow, on April 17, 2014, during the broadcast of President Vladimir Putin's televised question and answer session with the nation.

    Russian President Vladimir Putin warned of possible disruption to Europe's gas supply on Thursday, as the U.S. confirmed it would send additional military support to Ukraine.

  • The recovery in the EU's car industry carried on through March, providing some much needed cheer for automakers.

  • Amazon is facing fresh strikes in Germany after pay negotiations with the country's second-largest union Ver.di broke down, the Financial Times reports.

Contact Europe News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Europe Video

  • Jan Dunning, CEO of St Petersburg-headquartered hypermarket chain Lenta, says the situation in Ukraine has had no impact on the group, as consumer confidence remains unaffected in Russia.

  • Vincent Deluard, European strategist at Ned Davis Research Group, says the strong euro is a problem for the region's companies, especially for the large exporters.

  • European shares closed higher on Thursday as investors brushed aside concerns regarding Ukraine and focused instead on Wall Street earnings and the latest U.S. jobs data.