Aberdeen keeps faith in European equities

Economy March 04, 2014 00:00

By The Nation

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Despite sluggish growth amid an on-going debt crisis, Europe remains an attractive place to invest, says Aberdeen Asset Management.

Last year the Euro Stoxx 50 rose 18 per cent, as investors bet that after years of recession European economies would start to stabilise. The index is flat so far this year.
As elsewhere in the developed world, an excessive focus on recovery and yield, including from banks, has obscured the growing relative value in quality stocks.
Aberdeen sees an abundance of such companies, citing European multinationals with global markets and well-protected franchises. The majority of these companies have only partial exposure to the Continent.
What the fund manager likes about them is their technology, brand leadership and scale. In other words, it is hard for newcomers to break into their markets.
Granted, this year will be a difficult one for corporate earnings. 
Growth across the region may turn positive but conditions remain tough, with weak lending, a continued debt hangover and structural problems that need fixing.
But against that, corporate balance sheets look solid, operational efficiencies have improved and cash generation has benefited.
James Laing, deputy head of UK and European Equities, said: “The best European companies have shrugged off the growth malaise at home by continuing to invest, by diversifying and by keeping a lid on costs. 
“Many of the companies we invest in are market leaders with strong competitive advantages and with a background of successful expansion over the business cycle. 
“They favour progressive dividend policies, meaning they are prepared to pay out excess cash or buy in shares, as appropriate, with a view to raising returns to shareholders over time. 
“A dividend yield of over 3% compares well globally. Such defensive qualities give us confidence, should markets turn volatile. We will therefore look to add to positions on any price weakness.”