Investors Cautiously Test Europe's Upside
It is safe for investors to dip their toes back into Europe?
The jury appears to still out on that verdict. Across the Atlantic, the 17-nations that make up the euro zone are struggling to contain a blaze that is leaping across Europe’s economies and burning investors worldwide. As doubts batter Spain, Greece and Italy, the euro zone “is descending into the next circle of misery,” as The Economist wrote last week.
Still, signs are emerging that investors are seeking – and finding – value in battered European assets. Many are pinning their hopes on the deus ex machina of the European Central Bank (explain this), which could soon ride to the rescue with a massive bond-buying program (explain this) to contain surging euro zone borrowing costs.
As a result, some are cautiously probing the upside of certain European asset markets —defying the edict of bond guru Bill Gross, who earlier this week warned investors to steer clear of the Continent completely.
“We’re seeing a lot of investment managers coming over and buying large European multinationals that are crashing along with the overall European stocks,” said Jane Buchan, CEO of hedge fund PAAMCO on CNBC's Squawk Box Europe this week.
Specifically, she cited names of Europe-based companies like Unilever and GSK that have diversified revenue streams but whose shares have been caught up in sympathy the broader European sell-off. Still, Buchan added that investor participation in Europe was tepid and very selective at this point.
“We’re seeing quite a few hedge funds on the [sidelines] on the macro environment,” she stated. “We don’t play politics, we’re into valuations so a lot of them are putting money on the side or taking smaller bets.”
Other fund managers see value in companies that, while based in markets other than the U.S and Europe, are still brisk business in the euro zone. Neel Kashkari, Pimco’s managing director, said Kia Motors was a good investment given a 25% jump in its European sales during the debt crisis.
Under normal circumstance, the U.K. would be considered a shelter from the storm buffeting the euro zone, given the way its economy has traditionally outperformed its European peers.
This time, the Anglo economy has problems of its own. The woes dragging on the global economy have all but dampened Britain’s safe-haven status and curbed investors’ enthusiasm for British assets.
Late Thursday, global soccer icon Manchester United priced an initial public offering at $14 per share – well below the expected range of $16-20. Yet the fact that any company went public in the current environment could be an indication that companies are getting anxious on the sidelines.
And despite the disappointing price, Manchester CEO touted the club as a “growth story” that investors could buy into.
“What we’ve shown to investors on the road is that we are very much a growth story,” Gill told CNBC’s Squawk Box. “In the current economic climate we all face that’s a very positive thing, and people have bought into it.”