Over the next few years we should see a sustained period of moderate global economic growth, albeit more subdued than previous economic recoveries.
This background should prove supportive for equity returns, although the path will be fraught with difficulties and the returns delivered more subdued than seen over the past year. Growth rates in developing or emerging economies are widely expected to outpace their western counterparts, but this is well known in the market.
So where should one look to find underappreciated growth opportunities in Western Europe?
Across a variety of sectors I can find a number of attractive stock specific growth opportunities. Over the next few years companies will use cost cutting as an important tool to enhance earnings. Therefore outsourcing will become an increasingly important theme. Bilfinger Berger is one such company well placed to benefit from this having recently transitioned its business model from being a multi-service construction group to being more service orientated.
Ericsson is another undervalued growth example. It has gone from being much loved to being hated over the last ten years. However is offers attractive leverage into the huge growth potential of data plus phones in emerging economies. Swedish Match is also an attractive opportunity as their niche tobacco products offer an alternative to smoking and therefore benefiting from increased regulation.
On a sector level, pharmaceuticals is an undervalued growth area with many stocks trading at the lower end of their long-term ranges despite being best positioned to withstand the volatility anticipated in western equity markets over the coming years. Furthermore, we believe that fears over well documented problems in getting new blockbuster drugs to market have been overdone.
Elsewhere in healthcare, dialysis specialist Fresenius is well placed to benefit from an increase in kidney related diseases caused by changing global demographics.
John Botham, is head of European Equities and manager of Aviva Investors European Equity fund
