“Events, dear boy, events,” once said Harold Macmillan. Recent events in Europe have been far from dear, and that is one reason for investors to be less bullish on Europe – or so says Robert Quinn, Chief European Equity Strategist at S&P Capital IQ Equity Research. In fact he said: “Risk-reward balance has reversed as growth has slowed and events in Southern Europe have weakened the previously bullish investor sentiment.”
But, despite this, he said: “A buying opportunity will present itself at the end of the second quarter, due to the temporary nature of this slowdown.”
He added: “The driver of the rally over recent quarters has not been the expected improvement in growth, with subsequent earnings upgrades and rising bond yields, but equities being the least ugly return proposition. This is the reality of the central banks’ reflationist policies and a stage has been reached where valuations offer less support.”
So what stocks to go for?
Mr Quinn said that he “expects defensive growth to be the best performing theme in anticipation of a falling broader market.”
S&P Capital IQ Equity Research is most positive on names that have greater pricing power and earnings visibility such as food & beverages, personal & household goods, travel & leisure and technology, noting that the sectors score more favourably here with outperformance anticipated.
Overall, the equity research team is constructive on European equities for the full year despite the short-term concerns. On this basis, expectations for the end of 2013 are more positive with anticipated returns of 6.9 per cent from current levels with Earnings Per Share (EPS) growth forecasts for this year and next standing at 2 and 8 per cent respectively.
© Investment & Business News 2013