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European Equities Offer Profit Despite Politics

Concerned by the political backdrop of Brexit, Catalonia and the German coalition? Don't be, says Threadneedle's Ann Steele. European equities are the place to be

Emma Wall 24 October, 2017 | 3:43PM

After the French election result in May this year, European stocks rose in value. The sigh of relief from markets that Marine Le Pen had not been successful in her Presidential bid was almost audible. Foreign investment in European stocks rolled in from North and South American, buoying assets.

But while the Eurozone may have dodged that particular political bullet, the risks of upset are far from over. Catalonian independence looms as does Brexit – both have the ability to upset the apple cart.

Ann Steele, senior portfolio manager for Columbia Threadneedle lists populism, Donald Trump, geopolitics and terrorism as potential headwinds for European stock markets. She says that while GDP growth is positive, and earnings look good, the last time populism was this, well, popular, was just before the Second World War.

Despite the top down threats, stock fundamentals look good. European equities are yielding 3.4% and are far cheaper than their US counterparts, although most things look cheap relative to US stocks right now.

“Earnings have been consistently downgraded over the past six years,” says Steele. “But this year they are holding up and even surpassing expectations in some cases. Luxury retailer LVMH had spectacular numbers this year – I predict they will raise prices 4% next year because they can.”

Global and European economic growth is also improving, with Eurozone GDP upgraded last month to 2.3% for the three months to the end of June. Profits are up too. As for the threat of populism, Steele says that by identifying it, and talking about it, that may be sufficient to avoid repeating history.

3 European Stock Picks for Growth

Focusing on the fundamentals, Steele picks out three themes for growth within the European market; technology, the power of brands and the industrial revolution. “The impact of technology should not be underestimated,” she notes. “Tech will add up around 1.4% to global productivity.”

Moncler (MOV)

Moncler designs, manufactures, and distributes apparel products. Its offerings include outerwear, footwear, knitwear, and other apparel and accessory products which are sold through company-operated retail stores and online stores. It is best known for its down jackets. The share price jumped 47% on day one after the 2013 IPO and has delivered more than 50% since Steele invested.

3i (III)

This UK based private equity company has a “particularly attractive portfolio” according to Steele, owning transport companies, tech stocks and retailers. Standout holdings are Scandlines, a ferry company, non-food discount retailer Action and Q Holdings which makes pharmaceutical devices.

Sika (SXYAY)

Sika is a chemical manufacturing company that develops and produces systems and products for bonding, sealing, damp-proofing, reinforcing, and protecting in the building sector and the motor vehicle industry. Steele likes the fact that the firm is world-leading within their field, and has held the stock for eight years.

Recently, she became involved in shareholder action when the family who run – and have a significant stake in – the company revealed plans to sell it to another firm. Steele rallied other shareholders, including Bill and Melinda Gates and Fidelity, to block the sale. They are currently waiting for the results of a second court hearing due before January. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
3i Ord923.50 GBX0.76
Moncler SpA22.82 EUR-0.04-
Sika AG ADR30.95 USD-2.52-
About Author Emma Wall

Emma Wall  is Senior Editor for Morningstar.co.uk