17th September 2013 at 1:46pm
Over the last few months I’ve been re-evaluating the attractiveness of Europe from an investing perspective and it reminded me of the Hans Christian Andersen fable, The Ugly Duckling.
In recent years we’ve heard tales of gloom from Europe and how the region became unloved by investors.
This was not without good reason.
Headlines over the years
Headlines over the last few years have been dominated by rising unemployment, a failing banking system and in some countries, civil unrest.
We had the financial bailout packages for the PIGS countries (Portugal, Ireland, Greece and Spain, some also include Italy, Europe’s largest longstanding debtor) and earlier this year Cyprus needed a similar rescue package.
So, how ugly does Europe look today for investors? There have been signs of a transformation starting to occur in some countries.
We have started to see consumers becoming more confident; manufacturing data has been improving particularly in Italy, France and Germany and the region has recently emerged from an 18-month recession.
However, several problems remain.
For example there is little consistency across the Euro-zone.
In simple terms; a north-south divide exists, particularly with Germany remaining the powerhouse of the region. Those of you who have recently been on holiday in Europe might appreciate how a stronger euro is hindering the relative attractiveness of the region.
This is not just for countries that heavily rely on tourism but for international businesses and exporters.
What I have discovered during my research is that there are selective investment opportunities within Europe for careful investors.
Compared to their overseas counterparts, a number of European companies are attractively priced and consequently there are bargains to be found.
National profits generation
It is also worth remembering that a lot of European companies operate globally and are not reliant on their home market for generating profits. As I mentioned above, while there is a divergence between the fortunes of various countries in the Euro-zone, a similar situation between businesses exists.
While some are financially struggling, there are those that are financially strong, in a position to grow their business and increase their market share.
The Euro-zone is not going to transform into a swan overnight but I think we can describe ourselves as more cautiously optimistic at present than we have been for some considerable time.
In the MyFolio range of funds that I manage, we have recently increased our exposure to Europe and will carefully observe developments across the region as the story continues to unfold.
Please note, with any investment the value of your investment can go up or down and may be worth less than what was paid in.