Despite macro pressures in Europe, ample opportunity remains

Disappointing news across Europe has weighed on investor sentiment. This has prompted market dislocations, creating potential opportunities to reveal investment ideas. Members of the Global/International Value Equity team describe the circumstances.

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Despite macro pressures in Europe, ample opportunity remains

Ned Gray, CFA
Chief Investment Officer — Global and International Value Equity

The key things that people are concerned about with the macro issues in Europe are primarily those that are euro-specific. That is to say, will the euro zone continue to come out of its double-dip recession? Or, in the case of Italy, will it ever come out of [recession] at all, combined with, or in some cases compounded by the issues that are taking place in Eastern Europe, specifically the Ukraine, and the advent of more strenuous economic sanctions on Russia. That kind of problem runs both ways. Currently, it is intended to help rein in the intentions of Russia’s leader, but it also has economic consequences for Europe as well.

Opportunities amid the distress

Ned Gray, CFA

There could be some strong opportunities from a stock perspective within the euro zone. Assuming that the recession has in fact ended and that the economic recovery continues, the valuations that we’re seeing currently represent a pretty full discount to that economic distress, from a macro point of view.

Within that, though, there are individual companies that are clearly positioned to benefit from any recovery that does take place, but who also have ample protection in terms of access to resources and markets outside of the euro zone as well.

Anu Kothari
Senior Equity Analyst

European companies have amongst the best brands globally. They are big innovators and they also know how to operate internationally. Each European market is very small and so they are used to operating in international environments.

Michael Friedman, CFA
Senior Equity Analyst

If you look at the macroeconomic cycles, where I’m seeing opportunity is in Western Europe with the cyclical companies, companies like construction or autos. And the reason I say that is because Europe has been very very weak for several years and it is just starting to stabilize. So, as we stabilize and start to see growth, some of the stocks might still be mispriced.

Todd Bassion, CFA
Portfolio Manager

European markets tend to move in significantly different directions, so you have the U.K. accelerating to the upside at the same time you have Italy back in recession. But our motto is adversity creates opportunity, so we are looking for those exact type of dislocations in markets where we can find good, bottom-up fundamental ideas.


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