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Euro Zone at 'Epicenter' of Market Fears: CIO

Debt problems within the euro zone remain at the "epicenter" of investor concerns, but worries over a slowdown in China and the sluggish US economy also both pose threats to already volatile markets in the fourth quarter, Lucy Macdonald, CIO and head of global equities at asset manager RCM told CNBC.

A trader sits in front of a board displaying Germany's share index DAX at the stock exchange in Frankfurt/Munich, western Germany.
Martin Oeser | AFP | Getty Images
A trader sits in front of a board displaying Germany's share index DAX at the stock exchange in Frankfurt/Munich, western Germany.

"I think the three things which have really been on people's minds over this last quarter are Europe which is at the epicenter of concern, but also the slowdown in growth generally and that's the US as well and more recently, the China slowdown with concerns over the shadow banking system," she said.

Macdonald said she believes the debt crisis would be solved in a piecemeal way, and that over time stocks would bottom out, but she stressed that stocks were likely to fall further, and investors should wait to buy.

"I think (equities) are attractive… I think in a market as we have at the moment though you don't need to rush so you can be quite patient, because it's entirely possible that it gets even cheaper and then it could take some time to settle ... so I just don't think there's any wild rush," Macdonald explained.

Karsten Schroeder, chairman of Amplitude Capital and an advocate of separating the euro zone monetary region into two separate unions of larger northern economies and struggling southern ones, said less drastic measures were unlikely to calm markets.

"We see the markets certainly don't have confidence. On the one side we have a reflection of lacking fundamental growth, it's a cool-down, it's deleveraging on consumption here ... I'm not positive on equity markets going forward," he said.

Schroeder added that the multitude of discussions and summits on the issue of sovereign debt within the common currency area compounded investor fears and ensured markets remained jittery.

"We see also that the euro has lost value against the US dollar and that's probably a continuing tendency, simply because of all these discussions that we have going on, the markets have simply lost their trust or faith in a positive solution ... with regard to the euro zone," he said.

Earnings Season

Macdonald said she was looking forward to US earnings season in order to get a better idea of where particular stocks are headed, the extent to which corporate firms are troubled by problems in the euro zone, and more broadly, the global economy.

"We're coming up to the corporate season now in the US, so we'll get a little bit more information on a stock-by-stock basis, which is what we've been really, really wanting to hear because in the last few months we've been going through a period where the macro has been pretty negative, but many companies have been mostly saying, 'well it doesn't look that bad yet and it doesn't look like 2008,'" she said.

She added that the tech sector continued to offer good opportunities to investors, while health care had weathered recent market falls comparatively well while starting from depressed levels.

"There are plenty of bargains and you don't need to be incredibly brave in this market to see that there are some good value (stocks), particularly in the large caps," she said.

Macdonald added that investing in companies with large operations in emerging markets remained a good option, but she expressed concerns about a slowdown in Chinese consumption.

"You've got to be quite careful what you're selling at the moment, because we've heard about China and the fixed investment coming down – you don't really want to be selling into that wherever you happen to be," she said.

"So I think you have to be quite careful, very, very stock specific from the bottom up and see what the goods and services are that the company is selling and whether the customers are going to be spending."

Contact Europe: Economy

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