04/05/11

By Andrew Holt

While Europe's fixed income markets continue to face significant headwinds, European equities are under-invested and provide interesting investment opportunities for the sector, according to Alister Hibbert and Vincent Devlin, fund managers in BlackRock's European Equity Style Diversified Team.

Hibbert and Devlin manage over £1.5 billion in BlackRock's European Dynamic Fund and Continental European Fund respectively.

Hibbert and Devlin are positive on the outcome for Europe, and argue there are investment opportunities to be found, with five key factors driving growth in the region:

1. Strong corporate results: European companies continued to see strong inventory demand during the first quarter of 2011, although margins were squeezed in some sectors by rising input costs.

2. Strength in Northern Europe: Northern Europe is home to some of healthiest economies in the developed world, reflected by rising consumer confidence and strong momentum in the industrial cycle. The region offers a broad selection of well-managed companies that are able to access the strongest areas of global growth through high quality product offerings.

3. Strong exposure to emerging market growth: In Continental Europe, as much as a quarter of quoted companies' total revenues comes from emerging markets.

4. Consumer confidence rising: Consumer goods firms have been performing well as confidence in the region is improving.

5. Peripheral debt factored in to pricing: While peripheral debt concerns within the region have not yet subsided, much of the potential downside associated with a peripheral debt default is reflected in valuations and European policy makers are set to remain committed to the euro project.

Alister Hibbert, manager of the BlackRock European Dynamic Fund, commented: "We are expecting Northern Europe to outgrow the rest of the European economy over the next three years, and this potential is yet to be seen in market valuations.

"Companies in this region have been particularly strong over the past six months, although many investors are ignoring investment prospects in the region due to worries about the periphery markets."

Vincent Devlin, manager of the BlackRock Continental European Fund, added: "A valuations gap has widened as many investors fail to see the opportunity in Europe.

"While valuations in Europe are currently very attractive, we are also finding a multitude of opportunities in growth stocks, providing further evidence that Europe is a compelling area to invest."