Fund managers expect European stocks to rise in the second half of the year after shunning them so far this year, CNBC reports.
Richard Harris, chief executive officer of Hong Kong-based Port Shelter Investment Management, tells CNBC that European stocks might outperform U.S. stocks this year because of the low valuations of the stocks and the clarity of how European leaders will resolve the region’s debt crisis.
“We are at a stage where the U.S. (economy) may start rounding off and Europe may start to recover,” he said. “We could see a surprising reversal of relative performance there. One market has been whacked — and another market has done quite well. I think the market will look to equalize those.”
Harris is starting to get out of U.S. stocks and into European equities, in which he had been underweight.
“There’s a big fighting fund (in Europe) now. We could see a small pickup in growth and there’s a good chance that overall equity markets there will be underpinned,” he stated.
European stocks may already be recovering. The European markets rallied after the European summit late last month, in which eurozone leaders agreed to an economic growth package and measures to boost confidence in the markets, according to The Associated Press.
Still, U.S. stocks are trading at a higher valuation. The S&P 500 is trading at a price-to-earnings (P/E) ratio of 12.8, while the U.K.’s FTSE 100 and France’s CAC 40 have a P/E ratio of 9.5.
Franklin Templeton Investment’s global equities group is also overweight European stocks.
"Investors fleeing Europe as the crisis unfolds may miss potential opportunities to own quality companies at bargain prices,” Heather Arnold, executive vice president and director of research at Templeton global equity group, said in May, according to CNBC.
“With more than 60 percent of corporate sales from European firms originating internationally, the long-term prospects of well-diversified European multinationals are less correlated with their domestic macroeconomic outlook than the market appears to believe,” she added.
In addition, Mario Draghi, president of the European Central Bank, said last week that inflation was not a problem for the eurozone, even though the economy is weak and facing risks, Reuters reported.
“Inflation rate pressure … has been dampened. At the same time, economic growth in the euro area continues to remain weak, with heightened uncertainty weighing on confidence and sentiment,” he told a news conference.
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