A quick glance at European headlines reveals many reasons for the current investor anxiety around European equities, at least from a macroeconomic perspective: the German economy is slowing, while tensions in Spanish and Italian politics are heating up – and that’s before we even mention Brexit and all its ongoing uncertainty.
European equities are unloved by investors, who are either significantly underweight or have no exposure to this asset class at all. Those who are still investing in Europe are crowding into a small number of defensive sectors such as utilities, healthcare and food & beverages, which in some cases is driving ridiculous rerating.
But we believe an unloved environment such as this creates plenty of mispriced opportunities for structural growth over the medium to long term. It can really pay to be patient here, focusing on the quality and value of the stocks themselves rather than their macroeconomic background.