EUROPE – European equities could provide a safe haven for investors and potential for long term capital growth, with pensions reform having a significant impact, according to Gartmore research.
Gartmore believes that the Euro-zone and UK economies will avoid recession, officially defined as two consecutive quarters of declining output, and that their equity markets currently offer protection against short term global volatility, since the US may already be in recession and Japan is heading for another slump.
In addition, Gartmore suggests that the economic downturn in Europe will bottom out in the first half of next year, leading to accelerated growth in the second half.
Pension fund reform across Europe will see a huge increase in people taking out private pensions, as state run schemes will fail to meet demand, says Gartmore. Private pension schemes invest heavily in equities and their expansion is expected to lead to increased inflows of money into Europe’s stock markets.
Other factors supporting Gartmore’s claim include the fact that the ECB now has more room to manoeuvre on interest rates, as the Fed’s aggressive stance has seen it lower rates nine times this year to 2.5%. Gartmore predicts another ECB cut by the end of the year.
Furthermore, the recent falls in the price of oil are helping to curb inflationary pressure, even though Euroland’s inflation rate is still above the ECB’s target of 2%.
Says Roger Guy, senior investment manager of European equities at Gartmore, : “European equities have fallen by around 20% this year and many stocks are therefore very attractively priced, even though markets have recovered the losses sustained in the aftermath of 11th September.”