EUROPE – At a time of slowing economic growth in the US, Europe could prove to be a haven for investors, says Mark Pignatelli, head of European equities at Schroders. He suggests that equities in continental Europe are likely to benefit significantly if the European Central Bank cuts interest rates within the next few months.
“ Three main things will determine how ell European equities perform this year. First, how structural the problems in the US economy turn out to be; second, the severity of the over-supply of product and equipment for new world companies following last year’s misallocation of capital; and third, how quickly the European Central Bank decides to cut interest rates,” says Pignatelli.
The rate at which new jobs are being created suggests that the economies of the main countries within Euroland are likely to remain relatively strong. Continuing growth, combined with loosening monetary conditions if interest rates come down should be good news for the European stock markets.
“ In the past, when the rate of job creation and key parts of the economy have held up well, investors have been able to depend on continental Europe as a relatively stable source of return. Although the economic outlook remains mixed, it does look as though Europe is likely to play the same role again,” says Pignatelli.