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BlackRock fund manager says Europe will outperform US in recovery

BlackRock global equity fund manager Andrew Williamson-Jones believes that Europe is more effective in recovery than the United States.

Williamson-Jones says the stock markets of Europe are more exposed to cyclical industries, believed to perform more efficiently than defensive industries, which make up a greater proportion of the US stock market.

He says that in a downturn, businesses such as Germany’s engineer Daimler, France’s goods producers LMVH or Switzerland’s Swatch, suffer significantly. However, in a recovery, he states that these businesses can be very effective investments as customers return and as confidence and valuations recover.

The US stock market has a greater proportion of defensive industries such as pharmaceuticals, for example Pfizer. Williamson-Jones believes that despite the more defensive areas of the market, European companies tend to have greater cyclicality. Supporting this, consumer staples like Kraft have over 80 per cent of profits in the US whilst UK based SAB Miller has over 75 per cent of profits from emerging markets.

He says: “Added to this Europe has a greater proportion of its sales to overseas which is important since the recovery is being driven by the emerging markets of Asian and Latin American, not by the United States.

“In financials, Europe again scores ahead of the US. The US was first into
the downturn and was the first to start to recover. US financials were no
different but that means that US financials, JP Morgan for example, have
already climbed further out of the valley and trade on a 20 per cent higher
valuation than their cousins in Europe. Also European financials didn’t
experience the same bull market exuberance of the US, so their hangover of bad debts is smaller.”

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