Eurozone Recovery Starts To Excite Fund Managers


The Eurozone economy may have struggled for months but is finally starting to gain some traction with some fund managers.

One of the latest to talk up the continent despite the uncertainty of Britain leaving the European Union is Luca Paolini, chief strategist at Pictet Asset Management.

Pictet is a leading wealth manager with 270 investment professionals based at 17 centres around the world.

Paolini explained the firm had upgraded Europe equities from neutral to overweight to reflect improving economic growth and liquidity together with favourable company valuations.

“The economic picture has been gradually improving in Europe, thanks to the combined effect of a weaker Euro and lower oil prices. Manufacturing surveys point to stronger activity and private consumption has also been on the rise,” he said.

Confidence is growing

“For the first time in nine months, the economic surprise index – which tracks the extent to which data surpasses or undershoots consensus forecasts – has turned positive. An adverse outcome to the debt negotiations between Greece and its credits remains a risk but we expect the discussions to eventually deliver a compromise.”

Research by Pictet also reveals that banks are willing to advance funds, while borrowers are happy to accept more debt. This is one indicator that confidence is growing in the economy.

Valuations for European stocks are not compelling on first look,” said Paolini.

“However, on a cyclically-adjusted, the discount at which they trade against US counterparts remains wide by historical standards.

Earnings momentum

“According to Shiller’s price-earnings ratios, European equities trade at a record discount of some 33% versus US stocks. This is due to the fact that earnings in Europe are some 30% below their 2008 peak, an unusually low level that is unlikely to persist.

“Earnings momentum has improved in the region, and our forecast is for some 15% earnings growth for 2015, which looks achievable, particularly in light of the boost to exporters from the lower Euro. Moreover, in US Dollar terms, European indices trade at a record low relative to the US.”

Looking elsewhere, Paolini assesses US equities as vulnerable due to rising interest rates strengthening the dollar, which could erode company margins.

Emerging markets were judged neutral, while Japan was listed as ‘attractive’.


  1. Eurozone Recovery Starts To Excite Fund Managers

    Good epitaph on the Euro-headstone in a few months!

    This recovery has been desperately forecast since ‘the green shoots of recovery’ in 2012, but like their predecessors in the UK in 1992, they continue to be still born. This was foreseeable and forecast since Maastrict and piloted by the UK in 1990 – 1992 with their involvement with the ERM. ‘Whatever it takes’ leaves Greece repaying debt until 2060 (with GDP still falling) and Italian recovery taking to 2025 to get back to pre 2009 levels. Spain and Portugal threatened with fines because although they halved their deficits they still missed the 3% target – but were not actually punished. Not to mention Eurozone unemployment, under-investment and now poor performance on Innovation! And no one talks about France where their debt is increasing (but they get it QE’d out of harms way, whereas Greece doesn’t!!!).

    They’ve had since 2012 to sort it – now the world awaits our fate as events take the decision away from them.

    I’m keeping “my hand on my halfpenny”.

    BTW – 1 EZ exports have held up very well to date. 2 If an even lower Euro did boost exports it would only boost Germany trade surpluses – one of the drivers of the problems in the Eurozone (over which they have not been taken to task).

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