Threadneedle Investments CEO Mark Burgess said the decision to transition the group’s stance towards Europe from underweight to neutral has been driven by low interest rates, gradually improving economies, quantitative easing and a steady rise in equities within the European region.
Mr Burgess said while US equities rose significantly over the past three years, the company expected this growth to moderate in the second half of this year. The US economy is still reliant on the monthly injection of liquidity into its markets from the US Federal Reserve’s quantitative easing programme, and the growth the housing market had experienced is now slowing, he added.
“This is in surprising contrast with what is currently being seen in Europe, where a broad range of leading indicators suggest that even if growth isn’t accelerating, in much of the region, conditions have stopped getting worse,” said Mr Burgess.
Mr Burgess said that while the debt overhang is still a concern, investment opportunities in Europe are still attractive on a global basis, particularly against the United States.
“With global growth looking more robust than it has for some time, the prospect for many of the global champions listed on the European market has improved and we have become more constructive in the asset class moving to neutral,” said Mr Burgess.
Mr Burgess said that the company will, however, wait to see further progress in the underlying European economy before changing its stance from neutral to overweight. He said while there has been significant stabilisation in the Eurozone compared with the period directly after the financial crisis, the region still requires further developments.
“There are open-ended commitments to buy troubled debt, current accounts are moving back to surplus, Italy and Spain have achieved non-stressed rate levels and the restructure of Greece and Cyprus went ahead without inducing contagion; but in order for us to get behind Europe, we would need to see a better capitalised banking system and structural changes implemented that would enable economic convergence and a greater move towards true fiscal, as well as political, union,” Mr Burgess concluded.
