Should Investors be Buying Europe?

The eurozone is officially out of recession. Does this mean it is safe for investors to re-enter the fray?

Emma Wall 14 August, 2013 | 3:22PM
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The eurozone's combined economies grew by 0.2% in the three months to the end of June - meaning the group of troubled countries is officially out of recession. 

The region's economy had shrank for the previous six quarters, but was widely expected to post positive results today, as the two largest eurozone nations - France and Germany returned to form. 

Those six quarters amounted to 18 months of recession for the eurozone - the longest period of economic decline since the formation of the euro. 

Schroders’ European Economist, Azad Zangana said that the recovery was uneven across the eurozone.

"The core export orientated economies continue to lead the way, while the smaller peripheral economies continue to struggle in their implementation of austerity," he said.

"Germany and Finland both recorded slightly stronger than expected growth of 0.7%, while France also outperformed expectations, achieving GDP growth of 0.5%. But Italy and Spain who have already previously reported their growth numbers, remain in recession."

In the case of both Germany and France it was domestic consumption that drove growth, as confidence returned households began to spend again. 

Russ Koesterich, BlackRock's Chief Investment Strategist said there were strong reports on factory orders and industrial production from Germany last week, both signs of improvement in that country's manufacturing sector.

Koesterich continued: "These developments are quite encouraging, especially since we are finally starting to see a pattern of positive surprises in Europe's economic data after months of disappointments."

Morgan Stanley reported in its European Equity Strategy that investor interest in Europe has returned - piqued by low valuations and an improving economic backdrop. 

"Global investors are re-engaging with European equities given low relative valuations and an improving macro backdrop that includes falling funding costs, lower systemic risk and a better growth outlook," said Krupa Patel of Morgan Stanley.

"The cheapest European sectors relative to their US peers include utilities, insurance, banks, energy and autos. European banks also have the most depressed return on equity relative to US banks."

Despite the recovery, it is still a stock pickers region - active management can ensure that you do not have exposure to those nations that are still technically in recession. 

Morningstar analysts have awarded a Gold rating to Henderson European Growth and Jupiter European, while BlackRock European Dynamic, Fidelity European Opportunities and Neptune European Opportunities are all Morningstar Analyst rated Silver. 

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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BlackRock European Dynamic A Acc927.40 GBP0.11Rating
Fidelity Sust European Equity A Acc589.72 GBP0.51Rating
Janus Henderson European Gr A Acc293.20 GBP0.24Rating
Jupiter European L Inc3,046.27 GBP0.26Rating
Liontrust European Opports A Acc GBP  

About Author

Emma Wall  is former Senior International Editor for Morningstar