Investors should look to European shares this year despite the grim economic outlook for the region, according to United Global Capital (UGC).
With market conditions in Europe unstable, UGC has said blue chip European shares can be purchased at a far lower price than seen previously in the market, providing a possible opportunity for savvy investors.
“The fact is that despite what you might think, economic performance rarely has much of an influence on the performance of shares,” UGC managing director and chief financial strategist Joel Hewish said.
“There are, of course, rare occasions when a systemic event may bring everything down – the GFC a recent case in point – but often the short-term performance of a company’s shares will be just that, until companies are given time to adjust and adapt to the new environment.
“And that’s where the opportunity is right now.”
Greece provided the best performing European stocks last year, with a return of 33 per cent, despite experiencing its fifth consecutive year in depression.
Germany was the second best performer, with a return of 29 per cent in 2012, despite having the economic burden of the region’s bad debt.
UGC has said that Europe has some of the world’s biggest and most well-run companies listed on its exchanges, and despite share markets starting to rally, there is still an opportunity to invest in the region.
“Despite the fact there will inevitably be bumps along the way, Europe could in fact be a great place to start looking for cheap blue chip shares to add to your portfolio,” Mr Hewish said.
“You can see that [investors] are hunting yield because of the strength of the listed investment companies. Their discounts to asset backing has fallen quite substantially, so there [are] obviously investors buying for yield, which gives you some confidence,” Mr Dixon said.
The gyrations of the past five years, however, have shown the volatility of sharemarkets all too clearly but risks can be reduced by developing a diversified portfolio that does not have all the eggs in one basket.
“With all share investing – unlike cash and similar investments – there’s a need to be able to sit out downturns and allow prices to recover. The painful experience of investors who lost their nerve or were forced to sell during the GFC, when the market was 30 per cent lower than it is today, should remind investors of this,” Mr Dixon said.
