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Julian Gibbs

After having performed poorly last year in sterling terms, European

stock^_markets are now per^_for^_m^_ing much better and look likely to go

further ahead over the next year or two.

There are several good reasons for this. Interest rates are still much

lower on the Continent than in the US and UK, and are not likely to rise

much further. Inflation in Europe stands at 1.7 per cent, which
is lower

than in the UK
or the US.

The huge reductions in company taxes in Germany have stimulated the

economy there. More privatisation, more restructuring and more mergers are

taking place throughout Europe. This should significantly help company

profits and increase share prices.

Last but not least, the euro will eventually recover against the pound.

This will bring currency gains as well.

Some funds have become too big to manage effectively and will find it

difficult to outperform. The funds
that I am recommending are,

therefore, smaller ones such as Aberdeen European technology, Invesco GT

European smaller companies, Baillie Gifford European, M&G European smaller

companies and Save & Prosper European smaller companies.

All these funds have excellent past perform^_ance, excellent fund managers

and are less than 500m in size.

I believe that well-managed smaller company funds and technology funds in

Europe will perform
best because many smaller companies are

under-researched and are still good value.

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