McCarron, who is manager of the firm’s 4.6bn European fund, says investors should expect the market to take a breather after a prolonged rally but there are signs that the market remains in a strong position.
One reason for his optimism is the rapid fall in unemployment across Europe, now at its lowest point for 15 years, with the industrial hub of Germany a prime example of the turn-round.
He says: “German companies have been at the forefront of restructuring and have made significant changes to working practices. The still powerful German unions have been forced to acknowledge that if they do not compromise and negotiate with company management on restructuring and wage issues, they will lose jobs to Eastern countries where labour is abundant and relatively cheap.”
McCarron also believes that diversity has been and will continue to be a massive benefit to mainland Europe. Exports have been a big driver in Germany while the economies of Spain and Southern Europe have been based more on consumption but McCarron says this is starting to change.
He says: “There are signs that in 2007 and beyond, the German consumer will have more of an influence on European growth while the pace is likely to moderate in Spain. The European economy appears to be in a different stage of the cycle, namely mid-cycle, compared with the other regional economies. The cyclical divergence that remains so pronounced at a country level continues to provide a variety of attractive investment opportunities across the region and I believe European stockmarkets will perform well compared with other regions.”