Billions of dollars are flooding into European equities from American investors – so what is it they can see that their counterparts in Europe are missing?
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European experts at US bank Goldman Sachs have sieved through financial data that shows £57 billion came across the Atlantic as investment cash in the first six months of this year – the largest amount since 1977.
Stocks in Europe are reckoned to be 15% underpriced despite a hike of more than 27% since the European Central Bank vowed to do ‘whatever it takes’ to ensure the survival of the single currency.
The American contingent is led by strong institutional investors, like pension funds, who are traditionally conservative with the risks they take.
Andreas Zoellinger, of investment managers BlackRock looks at some reasons why the money is piling in from Wall Street at the fastest rate in 36 years.
Banking on the financial sector
Many European banks are coming back into fashion after rounds of stress-testing and recapitalisation leaves them with cash on their balance sheets
“Nordea is a sound investment,” said Zoellinger. “A Norwegian bank stacked with cash and with a strong CEO at the helm. Scandinavia did not hurt as much as many other places in the recession and is well-placed to make up ground in the recovery.”
Another of his tips is Norwegian insurance company Gjensidige Forsikring, with an over-capitalised balance sheet and showing a good yield.
Making the most of industrials
Zoellinger feels industrials are a cheaper option offering the same benefits as overvalued consumer staples.
Industrials, he explained, offer diversification, regular yields and opportunity for growth without buying in at the peak of the market.
Favourite stocks include Kone, the worldwide lift brand from Finland with no debt. A strong American profile and so much cash that two extra payments have been paid in three years to shareholders. Earnings show compound growth of 10% over the last five years.
Another tip is Assa Abloy, the conglomerate that owns firms like lock giant Yale, a firm with a history of making effective acquisitions and a good reputation in the States.
Value without growth
Many European domestic infrastructure companies offer a flow of strong yields without exciting growth.
Zoellinger cites Terna, the Italian electricity grid as a good example – paying a 6.5% dividend.
“These companies offer good value from a different perspective,” he explains. “They do not give spectacular growth but have a steady momentum that lets them pay a high yield.”
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