Irish Pensions Magazine Spring 2014
10
Analysis
Advertorial
compelling opportunity for the equity investor.
The balance sheets of Europe’s companies are in better
shape than they have been for a number of years.
Many firms have used the low interest rate environment
to lower debt burdens, while also hoarding cash. In
parallel, companies paid close attention to operating
costs, which was particularly relevant in a period when
revenue growth was difficult to achieve. This allowed
companies to soften earnings’ pressures and protect
profit margins. From current levels there is considerable
scope for margin improvement (figure 2)
Figure 2: Earnings growth to excel in periphery
As at 31 December 2013
Given the mix of low debt, continuing low interest rates
and improved visibility on the macro environment,
European stocks present a compelling investment
opportunity. And not just for institutional and individual
investors; this is fertile ground formerger and acquisition
activity as companies may target growth via relatively
‘cheap’ purchases. A healthier M&A environment
invariably helps to unlock value in undervalued stocks.
Although the euro will remain politically vulnerable,
and therefore susceptible to policy shocks, eurozone
fundamentals can improve and its economies may
recover in 2014; SSgA’s economic team expects a
growth rate of close to 1% for the region. Eurozone
inflation should remain well under control, while the
ECB appears to have the scope and the appetite for
further stimulus if necessary.
Overall, we believe that strong regional economies will
carry more-peripheral players with them in a beneficial
rising tide. For investors, judicious choice of investment
remains essential but there appears to be plenty of
scope to target returns. The low-yield environment will
drive carry trades, the hunt for yield and a focus on real
yields. Eurozone growth is good news for peripheral
debt, while expectations for improved corporate
earnings underpin European stock markets.
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may not be a reliable guide to future performance. Investing
involves risk including the risk of loss of principal. The whole or any
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investment advice and it should not be relied on as such. It should
not be considered a solicitation to buy or an offer to sell a security.
It does not take into account any investor’s particular investment
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expressed in this material are the views of Niall O’Leary through
the period ended 28th February and are subject to change based
on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements.
Please note that any such statements are not guarantees of any
future performance and actual results or developments may differ
materially from those projected. All information is from SSgA and
Bloomberg unless otherwise noted and has been obtained from
sources believed to be reliable, but its accuracy is not guaranteed.
There is no representation or warranty as to the current accuracy,
reliability or completeness of, nor liability for, decisions based on
such information and it should not be relied on as such. Although
bonds generally present less short-term risk and volatility risk than
stocks, bonds contain interest rate risks; the risk of issuer default;
issuer credit risk; liquidity risk; and inflation risk. This effect is usually
pronounced for longer-term securities. Any fixed income security
sold or redeemed prior to maturity may be subject to a substantial
gain or loss. Risk associated with equity investing include stock
values which may fluctuate in response to the activities of individual
companies and general market and economic conditions. Investing
in foreign domiciled securities may involve risk of capital loss from
unfavorable fluctuation in currency values, withholding taxes,
from differences in generally accepted accounting principles or
from economic or political instability in other nations. The above
mentioned Growth expectations are estimates based on certain
assumptions and analysis made by SSgA. There is no guarantee
that the estimates will be achieved.
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IREMKT-1052 Expiration Date - 02/28/2015
Article Author
Niall O’Leary
Head of EMEA Portfolio Strate-
gists Group
State Street Global Advisors
