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Adviser Fund Index

The May rebalancing of the Adviser Fund Index showed panellists becoming more bullish about Europe despite the protracted economic turmoil in the region.

At 12 per cent, the AFI Aggressive Index allocation to European equities is back to a level last seen in May 2008.

Economic problems in the eurozone first became apparent with the election of a new Greek government in October 2009. Since then, Greece has gone through a series of negotiations over possible bailout packages and the associated austerity programmes. Portugal and Ireland have also negotiated bailouts while implementing harsh spending cuts.

The crisis is far from resolved. There is still wrangling about whether the measures agreed so far are sufficient to resolve the underlying economic imbalances.

Even worse, Spain, a much bigger economy than any of those embroiled so far, is looking increasingly fragile. Some have suggested it may even require a bailout.

Despite the economic uncertainty, the AFI rebalancing figures suggest that panellists may be taking a contrarian view of European equities. Some panellists say the uncertainty has made stocks more appealing by driving down valuations.

According to Allenbridge director of research Jonathan Wallis, valuations are looking “very attractive”. He says: “I think people can see some good value coming through in Europe, and it is also a good way to access emerging markets. Concerns about the eurozone are still prevalent, but this is what has been creating attractive valuations.”

Much of the news from the peripheral countries is troubling but the outlook for the region as a whole is more mixed.

Germany’s unemployment rate fell to 7 per cent in May from 7.1 per cent in April but the rate is Spain is three times as high.

Another potential positive is that the European Central Bank has moved to quell inflation faster than the Bank of England, with a quarter-point increase in rates in April.

Strength in some of the Northern European countries could be a factor driving some investors towards the region.

Chelsea Financial Services managing director and AFI panellist Darius McDermott says there are countries which have recovered well from the financial crisis, making them good investment opportunities.

He says: “We have been discussing the virtues of Europe with investors. There are sovereign issues overlaying but Europe is a mixed bag. It contains several core countries which are displaying growth. These include Germany, the Netherlands, Switzerland and Denmark. Investors have a choice, they do not need to invest in countries such as Portugal or Ireland.

“Because of concerns about peripheral eurozone issues, Europe is currently one of the cheapest developed markets.”

Data supplied by Financial Express


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