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Investment view

This has been one of the more disappointing summers of recent years. Hail masquerading as snow in Hull and tornadoes in Yorkshire – quite how the head of the Bournemouth tourist board felt that weather forecasters were misrepresenting the British summer, I cannot imagine.

Given that in London we were basking in some fairly hot sunshine last week, the weather was clearly delivering a mixed message. The same could be said of economic data. The Federal Reserve Bank&#39s open markets committee decided against raising interest rates, which did the US market no harm, but a business confidence index published in Germany suggested a slowdown in the economy. I find this surprising, given that production rose by an impressive 3 per cent annualised during the first half of this year and job vacancies are now at the highest level since shortly after reunification. Perhaps German businessmen are trying to head off another increase in interest rates by the European Central Bank. Perhaps I should concentrate more on my holiday plans.

This year, I intend to stay fairly close to home, visiting France. I am grateful to the French. In the virtual portfolio I run for a TV programme, it is France that has delivered the best returns. With a rise of more than 6 per cent so far this year, even adjusted for the poor performance of the euro, it has knocked the UK into a cocked hat. The FTSE 100 is still 5 per cent down despite better recent performance.

So many managers are punting for Europe – and France in particular – as the place to put your money for the rest of the year, that I confess to feeling just a little worried. Still, the signs are good. Europe has plenty of ground to make up economically. The benefits of a low interest rate environment and cheap currency are beginning to be seen in rising corporate activity, notwithstanding last week&#39s Ifo index in Germany. Growth should be ahead of our own for the next 12 months, while inflation, other than in unfortunate places like Ireland, should remain subdued. True, at a 2.4 per cent average for the eurozone, it is above the ECB&#39s target of 2 per cent but there are no signs of serious upward pressure.

On the plus side, there is the added spice of emerging countries on the doorstep, all anxious to embrace consumerism now the Communist shackles have been shed. There is enormous room for growth in GDP per capita around the edges of Europe. Even countries such as Portugal are still only little more than half as wealthy as, say, Germany.

Among the investment trusts to regale us with reasons to buy at G&N&#39s recent London seminar was the Govett European enhanced investment trust. I am always interested to learn about what is happening there as it is run by an ex-colleague of mine, Peter Kysel. He was pretty upbeat about prospects for his trust but, then, he could afford to be. Performance since last autumn has been stunning. He points to the low inflation/rising economic growth background which he believes will continue to support markets that do not suffer from extended valuations. Government deficits are also coming down. Just look at how much money Germany received for the mobile telephone licences. There is also much ground to be made up through streamlining manufacturing, while corporate M&A activity should continue to blossom. Add to that a growing equity culture and it all sounds very exciting.

Of course, the Govett trust has a complex capital and investment structure, so it will not suit everyone. Still, Europe looks as though it should continue to find favour among investors. It is becoming very hard to spot the divide between continental European and UK companies, a process that a merged stock exchange, if it happens, will speed.


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