The International Monetary Fund forecasts euro area economic growth of 1.3% in 2019 and 1.6% in 2020. That trails projected global growth rates of 3.2% this year and 3.5% next year, as well as expected growth rates in most individual regions. But at least it beats Japan (0.9% growth in ’19 and 0.4% in ’20), which perhaps is the “sickest man” of the global economy.
The looming Brexit showdown (will it be a hard break or soft break?) and trade wars don’t help Europe’s economic situation.
“If there’s going to be a hard Brexit, it’s better to do it sooner than later because we’ll go through the pain, but economies will adjust and life will go on,” says David Souccar, international equity portfolio manager at Vontobel Quality Growth, the $30 billion long-only equity boutique of Vontobel Asset Management. “That said, part of the benefits of having the U.K. in the E.U. will be lost forever for both sides.”
Souccar is a portfolio manager on the Virtus Vontobel Foreign Opportunities Fund, which has a large-cap growth focus and was up 18.6% through August 8. He notes the market is discounting European stocks exposed to Brexit risks, resulting in what he says are good opportunities in the U.K. from both quality and valuation perspectives. “But you need a long-term view to invest in these opportunities because you’ll need to stomach a lot of volatility,” he says.
Regarding tariffs and trade wars and their potential deleterious effect on Europe’s leading exporters, Souccar sidesteps that by focusing on multinational companies with solid local footholds across the globe.
“European companies are ahead of the game because they went into emerging markets before everybody else and are entrenched on those markets,” he says. “And that’s not something that will go away, even in a trade war.”
Souccar says he favors companies such as L’Oréal, Unilever and Nestlé that are Europe-based but do business all over the world and are dominant in what they do. “They are posting growth and good margins,” he says.
He also likes companies with a niche within the European market. One such company is Cellnex, a Spanish wireless telecommunications infrastructure company. Another example is Vinci, a French company that Souccar says is one of the largest toll and airport operators in Europe. It also has substantial overseas operations.
“Despite all of the gloom and doom, you can still find plenty of exciting investing opportunities in European companies,” Souccar says.