EVENT ROUND-UP PA EXPERT INVESTOR EUROPE
Surviving the chaos
At Portfolio Adviser’s Expert Investor Europe held in London at the end of November,
before David Cameron’s stand-off with the other 26 signatories to the European
Treaty, delegates heard the investment challenges presented by the eurozone turmoil
Vincent Devlin, BlackRock
Adrian Bignell, Invesco
Perpetual
Vincent Devlin, portfolio manager,
European equity team,
BlackRock
As a top-down investor,
BlackRock’s Devlin was
ideally placed to explain
the macro background for
European investors. While
there may be a consensus
view on Europe being in
economic decline, there is
far from a consensus view
on what investors can do
about it.
He described the earnings
recovery in July that
was then hit by a further
economic slowdown, as
the euro crisis started to
bite in Spain and Italy.
As a region, the eurozone
does not have the
highest debt-to-GDP ratio
but, because it is Treatybased,
what it can do to
rectify the situation is relatively
inflexible as it needs
all 17 countries signed up
to the euro to agree on any
policies put in place.
Putting this in context, the
eurozone has a debt-to-
GDP ratio above 230%, the
US just breaks through the
250% barrier, the UK
pushes 300% while Japan
is north of 350%.
Investors are further
hampered, he added, as
the political indecision this
inflexibility leads to has
the knock-on effect of
companies cutting back on
their own spending and
investment. At the same
time, investors are more
than aware that markets
move around any EU
summit meetings so the
sooner there is an agreement,
the sooner this particular
contributor to volatility
will lessen.
Devlin also pointed out
that equity markets have
sold off significantly and
valuations in Europe are
trading close to their 2008
levels but that valuations
alone are not enough.
“There is definitely
long-term value,” he
argued, “but we need the
framework there.”
It is a political resolution,
he added, that is key
to unlocking the value in
what he expects to be a
low growth environment.
Ultimately, he concluded,
high-quality European
businesses present an
attractive opportunity set
in this context.
Adrian Bignell, fund manager,
European equities, Invesco
Perpetual
Invesco’s Bignell asked
those present whether or
not investors are set for an
upcoming “lost decade”, in
the same way as the first
decade of the 21st century
was for equities in general.
His concerns were centred
on an impaired banking
system, governments still
working towards a solution,
a lack of visibility,
response and policy.
There is no quick solution
and years of leveraging
will not unwind overnight.
He translated this
with a bias towards the
core countries in Europe
rather than those in the
periphery that, among
other things, do not have
the capacity to export.
As a multi-cap manager
– though he has extensive
experience as a small-cap
man – he said corporate
Europe is strong with
inventories being run well.
He described 2008 as “a
400 metre dash for cash”
while 2011 is “a 100 metre
sprint”. Balance sheets are
also strong enough for him
to comment: “It feels obvious
to own equities on a
ten-year perspective but it
is tough to do now.”
Equity price-to-book
might be reducing, but the
return on equities is still on
a consistently upward
trend and corporate profitability
is as good as the US
or UK.
But behind all this is the
frustration, as a bottom-up
stock picker, that politics is
running markets that are
very much dominated by
the macros, so much so
that Bignell says we are
going into yet another mild
credit crunch.
12 PORTFOLIO ADVISER [www.portfolio-adviser.com] JANUARY 2012
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