Concerns over the Greek financial crisis and its effect on the Euro do not mean quality firms in continental Europe cannot deliver strong returns, says Leon Howard-Spink, manager of Schroders’ European Alpha Plus fund.
Speaking at a Schroders investment conference in Edinburgh last month, Howard-Spink said the sheer complexity of having 16 different political systems across the countries of the Eurozone made macro-economic predictions about the effect of state intervention virtually impossible.
Instead, investors should go back to basics and look at whether individual companies are good or bad value. He added that there were plenty of companies in northern Europe that were positive about their future prospects. Howard-Spink also warned against over-reacting to the recent weakness of the Euro, arguing that a weaker Euro would be good for manufacturers within the zone. He added that other currencies, such as the dollar and sterling, have had corrections in the past that have not proved fatal.
He did, however, argue that the Euro model would remain under strain because of the inability of individual countries to set their own exchange rates. He predicted political pressure from member states on the very concept of Euro would grow, but did not expect a break-up of the currency in the foreseeable future.
He also responded to those who would argue that the unresolved issues within the Eurozone meant the region should be avoided, by highlighting the fact that European equities have outperformed their UK counterparts over five, 10 and 15 years.
Howard-Spink said: “Looking at political trends and the sustainability of the Euro, and reading that through to views on European corporates, does not work. Finding out what might ultimately happen to the Euro will not tell me how much market share my German spectacle manufacturer, Fielmann, has gained in the last year.
“The word ’crisis’ is bandied around a lot at the moment but the Euro is still above the launch rate. Much of is this just a part of a round of competitive devaluations that we have seen in the UK and in the dollar. German exporters are not sitting there thinking ’oh god we are getting negative headlines because the Euro is a disaster’. They are thinking ’this is great for competing on the global stage’.”