European Stocks Set for Turnaround: Strategists
Since March 2009, when European indices sunk to the lowest in over a decade, continued volatility has meant many investors have been underweight equities. But a turnaround may be on the horizon for European stocks, according to some strategists, who say new policies in Europe could boost equities.
Mark Haefele, Head of Investment at UBS Wealth Management says the bank recently changed its outlook from underweight to neutral.
“A lot of people have remained underweight on European equities and we think that is the wrong move at this point,” he told CNBC Friday.
“We have seen some significant changes on the horizon on the political front that could act as a catalyst. So the risks are more balanced now to the upside and the downside.”
Haefele conceded the European economy wasn’t out of the woods yet, UBS remain neutral overall on equities due to slowing growth.
The investment bank prefers U.S. high-yield bonds over equities, but Haefele says there are still good returns to be had in European equities if investors are prepared for the risks.
“You have to be in it to win it,” he said.
“Investors that are willing to take measured risks, move with the pack sometimes when things get difficult, but also take advantage of opportunities when they appear - those investors have done well.”
“Despite volatility and all the things that have happened, we’ve seen a real rise in equity markets over the course of a one year period or year-to-date,” he said.
The FTSEurofirst300 has risen 15 percent over the past year and is up 8 percent so far in 2012.
Simon Maughan, Financials Sector Strategist at Olivetree Securities is also bullish on European stocks, especially the financial sector.
“We’ve certainly seen a lot more client interest in European banks and some of the braver ones and certainly some of the bigger value investors are moving quite heavily overweight in the financial sector,” he told CNBC Friday.
He explained that it wasn’t time for any “hero trades” with investment in Greek or Spanish institutions, but said there may be a rally in Scandinavian banks.
He also recommended French banks, that are stripping away their bad assets, as well as the Britain’s Barclays bank, which on Thursday announced the appointment of a new CEO.
“There’s a number of catalysts here for a number of stocks that are trading well below book value that can do well before year end,” he said.
Mohamed Al-Thani, former minister for the economy and trade at the Qatari government pointed out that sovereign investors were no longer standing on the sidelines and were looking at European assets.
“I think the sovereign wealth funds, especially in the Gulf, are looking at strategic holdings in certain sectors,” he told CNBC Friday.
"They look at it as being a safe haven of buying into sectors that they like. It’s not anymore of just buying, it’s more of a select buying and that’s why in Europe there are prices that attract these funds to buy,” he said, adding that State funds were interested in energy and food firms.