Europe Economy

Investor fears over Europe could be overdone, but watch out for the US: Experts

The risks surrounding the several elections involving populist movements set to take place across Europe this year are being overstated, say investment experts.

Investors are concerned about the continued rise of populism could upset the current political and economic system, but Andrew Parry, head of equities at Hermes Investment Management, expects Europe to react against populism this year.

"There's the political risk that appears to be hanging over Europe. I think somewhat ironically, the more that people think that Trump is the embodiment through populism of the new economic model, the more you actually get a reaction against populism in Europe," he told CNBC's Street Signs.

"The political fears with the forthcoming French election, and then Dutch and German later in the year, possibly could be overdone."

Deutsche Bank at the start of a long journey: Hermes
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Deutsche Bank at the start of a long journey: Hermes

European shares look cheap and are well placed, according to Parry. He added that the political risk is overstated in Europe, but is understated in the U.S.

"I do look at the U.S. and it's definitely viewing all its prospects through rose-tinted glasses," he said.

"The revelations over the weekend about Trump accusing Obama of wiretapping with no evidence, I think these are all quite worrying signals about the behavior of the leader of the Free World and actually there seems to be no discount whatsoever for any political risk in America, whereas there definitely is a discount in Europe for political risk."

Parry's comment echoed earlier similar statements from Alex Dryden, global market strategist at JPMorgan, made last week.

"It's the political risk that seems to put a lot of the investors off," he told CNBC's Squawk Box on Thursday.

"They look at the busy political calendar. We've got French, we've got German, we've got Dutch, we might even have Italian elections by the end of the year, so people have to be able to stomach that political volatility when getting into European equities."

Political risk in Europe is overdone: JP Morgan
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Political risk in Europe is overdone: JP Morgan

However, he said these political risks look overdone. The political institutions of Europe are designed to be difficult for populist parties to gain power, while Europe's economic fundamentals are improving, according to Dryden.

"Every EU economy grew last year. That was the first time that that has happened since 2007. You're seeing a broad-based, cyclical upswing in Europe and that's where I think the opportunities are."

Year-to-date, the pan-European Stoxx 600 index is up 3.39 percent. Over 12 months, it's up 9.33 percent.

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