View more on these topics

Euro vision

The exceptional measures taken to stimulate world economic activity and boost business and consumer confidence following September 11 are beginning to have the desired effect.

Not only are there increasingly clear signs that the downward momentum in global growth has faded, but there is also growing evidence of improvement. Within the pan-European region, the UK stands out as the economy that has been most resilient in the face of an adverse economic background worldwide, largely due to the strength of consumer demand.

But robust consumer spending has also helped the French economy. Spurred by low borrowing costs, French consumer spending has risen for five consecutive months, raising hopes that its economy will avoid the recession that threatens Germany.

Economic growth on the Continent is likely to remain relatively subdued, but we foresee an improvement over the year – partly in response to a general upturn in the world economy. In addition, it is feasible that the European Central Bank will ease policy slightly, given the positive outlook for inflation.

Last year&#39s cautious approach to lowering interest rates was largely due to the fact that inflation was well above the bank&#39s 2 per cent target but this constraint will not be relevant if inflation falls to 1 per cent as we anticipate.

Further downward pressure on inflation will come from the oil price, which appears set to remain low. With inflation under control in Europe, we believe the likelihood of rates being raised once a recovery becomes more evident is comparatively slim.

The situation in the UK is somewhat different. Although economic growth is expected to be well below trend in the first part of the year, we believe it will remain clearly positive and will return to a level above trend later in 2002.

This alone could lead the Bank of England to raise interest rates to counter potential inflationary pressures. However, the fact that the bank&#39s monetary policy committee has always made it clear that the main motivation for last year&#39s rate reductions was the deteriorating global background and its potential impact on the UK lends additional weight to the prospect of higher rates.

Against this background of improving economic growth, we believe pan-European equity markets are poised to deliver positive, albeit modest, returns this year. The autumn rally that followed September 11 reflected investors&#39 willingness to look through the prevailing bad news to the pros-pect of recovery. That rally has come to an end and markets now await proof that their expectations will be met.

Proof in the shape of encouraging economic releases and better than expected corporate results is undoubtedly emerging, albeit sporadically. In the UK, unemployment remains low, wages growth is firm, house prices are still on the way up, and consumer confidence is buoyant.

On the Continent, both industrial and consumer confidence appear to be rising and there is evidence to suggest that the German economy,one of those most badly affected by the global slowdown, may have bottomed out. Against this, however, unemployment in both Germany and France has continued to rise.

On the corporate front, there has been positive news from various quarters. In the telecoms industry, Nokia achieved better fourth-quarter results than had been anticipated and also increased its forecast for sales of mobile phone handsets in 2002 from 380 million to between 420 million and 440 million.

This follows a tough year for the industry, when many of the company&#39s competitors were forced to cut prices drastically to make sales. Similarly, BMW, the German luxury car maker, saw fourth-quarter sales rise substantially over the previous quarter on strong demand for its 3-series and the new Mini.

At the moment, these positive releases are relatively isolated and there is undoubtedly more poor news to come, particularly from those companies less likely to benefit from a cyclical recovery. As a result, the high level of sector volatility that has been a feature for some time now is likely to persist.

This in itself can create excellent stock-specific investment opportunities but we are also confident that the underlying trend in pan-European equity markets will be upwards, as positive news comes to outweigh negative.

Various other factors will also contribute to a more rewarding year for European equities. The implementation of tax and pension reform in Germany through which the public will be encouraged to make greater personal financial provision for the future is likely to provide support for the region&#39s equity markets.

Last month&#39s successful introduction of the hard euro currency should also have a positive impact. The euro was already the second most tra- ded currency by volume on international money markets, ahead of both the yen and sterling. With the advent of the hard euro, retailers in countries outside the eurozone have indicated their willingness to accept it. There have been calls within Denmark for the country to hold another referendum on whether to join the currency. Even in the UK, recent surveys show the currency&#39s popularity is rising.

Over the longer term, we expect the euro to act as a catalyst for consolidation and restructuring throughout the eurozone as the single market reaches its full potential – a prospect that we believe augurs well for corporate earnings and hence for the region&#39s equities&#39 long-term performance.


Star pickers for Old Mutual mid-cap fund

Old Mutual Asset Management has picked two of its highest-profile managers to run its new UK mid-cap unit trust.The OM UK select mid-cap trust will be managed jointly by its head of UK equities desk Ashton Bradbury and Richard Moore. Both are renowned stockpickers.Bradbury is currently res-ponsible for Omam&#39s UK select smaller companies fund while […]

Major stake in FundsHub for JP Morgan

JP Morgan has acquired a majority holding in third party fund supermarket technology and operations provider FundsHub from founding firm Investia.JP Morgan is understood to be acquiring a 85 per cent share in the company for between US$10-$15m (£7.1m to £10.5m), with FundsHub&#39s management team taking the remaining 15 per cent.Both owners intend to inject […]

ABN Amro – Premier Funds Service

Thursday 14 February, 2002. Aim: Income or growth depending on investment strategy. Choice of balanced, capital growth, conservative, international or ethical strategies. Minimum investment: Lump sum £10,000. Investment split: Choice of balanced, capital growth, conservative, international or ethical strategies. Income facility: Yes. Charges: Initial 4 per cent, annual 1.25 per cent. Commission: Initial 3 per […]

Axa Isle of Man relaunches website

Axa Isle of Man has relaunched its website to include several new features for IFAs including a new commissions reporting function and revamped quotation facility.The extranet site from the offshore arm of Axa now allows IFAs to track how much commission they have earned, obtain quotes online and to view policies which are new and […]

Leading Edge – April 2017

There is little doubt 2017 will be a year of political uncertainty. Leading Edge is Royal London Asset Management’s regular review of investment markets. This edition explores some of the impacts that this uncertainty is having on investors, from the pitfalls of prediction within UK equity investing to the dangers of opting for convenience over […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm