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New Star’s Pease sees US and Europe leading bounceback

New Star European growth fund manager Richard Pease believes that the close correlation between Europe and the US markets could see the pair lead a bounceback.

Pease says although the US has been highlighted in the first in and first out of recession scenario, historical market troughs show that Europe and the US move similarly in terms of a market response.

He says the European market peaked before the US, with the MSCI Europe index turning down in July 2007. He also believes there are several factors that indicate strength in the next 12 months, such as European governments being in a stronger position than US or UK counterparts. He says the strong euro acted as a brake on earnings last year. He says: “As the European Central Bank cuts interest rates, the relative yield attraction with other currencies will diminish. A weaker euro would improve the profitability of those companies with overseas earnings and further support valuations.

“For a sustainable rally to be achieved, however, the US housing market needs to find a floor and credit markets must reopen. It would be a brave investor who bets against US hegemony in the equity market direction but the past 18 months has seen the fall of many stockmarket tenets, so maybe a European-led recovery should not be entirely dismissed.”

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What carnage across all the markets and almost every asset class. Life office shares for just over 20p and daily percentage swings in blue-chip banks of 20 per cent, interest rates of 0.5 per cent and the bizarre position (since reversed) of sterling increasing in value after a rate cut.

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You might think that the FSA is too preoccupied with the financial stability of banks to worry about adviser firms at the moment. But remember that the regulator has hundreds of staff in its small firms and retail themes divisions and their work is still focused on issues affecting adviser firms.

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