Don’t worry too much about the politics when considering investments because markets generally weather these storms without too much trouble, argues a leading fund manager.
Martin Todd, a European fund manager for financial firm Hermes Investment Management feels too many investors worry about political side shows derailing wider economies without foundation.
His view is markets are in a continual state of political and economic flux, but investors overestimate the impact of these events.
Todd made his remarks as part of a wider discussion about investing in Europe.
He notes that fund managers have pulled cash out of Europe for 36 weeks in a row, but considers now is the time to invest rather than withdraw.
Existential threat
“Sentiment towards Europe has been driven down by political events before – the credit crunch in 2008, the sovereign debt crisis in 2010, the Greek crisis in 2012 and most recently the UK vote for Brexit,” said Todd.
“However, since the global financial crisis, the MSCI Europe Index has returned 69%, showing that these market falls created opportunities for investors to buy into a long-term recovery.
“I am not arguing that the region is without its problems. Europe remains a complex picture. The European Union faces a real existential threat exacerbated by Brexit. This, in turn, feeds into a growing populist political narrative taking root across the continent. “
Todd expects slow, gradual growth in Europe, spurred by the low euro, cheap borrowing eased by relaxed monetary policy and a boost from leaving austerity behind.
Recovery lagging
He also claims Europe is lagging other developed regions in the move towards economic recovery.
“This offers a great opportunity for earnings,” Todd said. “Demand for autos started in the US as long ago as 2010, but has only just perked up in Europe.
“Europe offers attractive valuations and I expect to see aggregate single digit earnings from stocks in the portfolio.
“I do not expect plain sailing, because too many factors could spike volatility in the markets but this will uncover quality companies at discounted prices.”
Lastly, Todd views the best opportunities may come from outside the household brands trading across Europe – especially in technology and healthcare – that will come to the fore as recovery gathers pace across the EU.