Attractive valuations in Europe lead a justified focus on international opportunity, according to one advisor.
Oakville-based Elie Nour
, senior investment advisor at Nour Private Wealth with Manulife Securities
Incorporated, said media debate about whether emerging markets are on a hot run or overheating misses the point and that the key fact is actually synchronized global growth.
As well as Europe, capital strategists and lead economists also point to opportunity in Asia, but Nour says the improving political environment in Europe and its upward economic momentum, with GDP improving from 1.7% to 2.3% in 2017, means signs are positive for 2018.
Nour believes that current Europe valuations, which are above the long-term average of 16x P/E multiples, leave room for upside, especially compared to the US, which is at 22x P/E.
He said: “Germany is no longer carrying the growth in Europe alone; we see that most economies now are participating. The fundamentals are in play and the recovery in Europe, as far as improved economics, has only turned around last year. Prior to that, Europe was hurting post-2008. Almost two years ago they were still using strict austerity measures and there were talks that the EU might break up.”
Nour believes Emmanuel Macron’s election win in France and Angela Merkel’s continued presence at the helm in Germany – albeit with coalition talks ongoing – means there have been benefits from political steadiness in the continent. The uncertainty surrounding the impact of UK’s Brexit vote also hammered home to other EU nations the benefits of government stability.
Nour said: “There is always something to be gained from more political stability. [Europe’s] recovery took longer as did their stabilizing. Now, while still maintaining quantitative easing measures, we are seeing unemployment come down, earnings pick up, consumer spending increasing, savings rates starting to fall (as consumers become employed they are more confident in personal balance sheets and start spending), while credit growth is growing (they borrow - they spend = good for the economy).
“Stronger domestic demand is leading the recent recovery, and with economic and political uncertainty waning, plus now signs of business investment going up, this bodes well for the sustainability of the recovery.”
Nour said that for most economies, improving GDP rates remain below those leading up to the financial crisis, helping to keep inflation at bay. His trend over the past 12 months has been to reduce Canadian equities, gradually trimming US equities and taking profits off the table while increasing international exposure. As well as Europe, Nour highlights potential returns in Japan and China.
“From an opportunity set, Japan, the world’s third largest economy, has completed seven consecutive quarters of positive GDP growth, the first such streak in almost 17 years. Japan had impressive growth last year, as well as Asia.
“China’s growth has become more balanced. Their debt is no longer growing faster than the economy. Its economic data continues to be positive albeit not as robust as a decade ago.”
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