Markets are at a transitional stage but whether they move in an upward or downward direction over the next six months is still unclear, according to LV= European manager Richard Falle.
Although valuations are attractive in Europe, investors are uncertain about what the economic recovery will look like in the short term so are wary of placing any bets, he says.
“All the charts are at fairly critical levels but whether it will be another sell-off or not, we do not know.
“The summer is always a difficult time and it is easy to dislike Europe at the moment because of the euro.
“We are also seeing governments slashing budgets and people are worried the recovery has been choked off before it gets going but I think we are at a crossing point,” adds Falle.
He sees opportunities in all countries, including the PIIGS, particularly in multi-national businesses that are export-led.
In Spain he has bought Ebro Puleva, a mid-cap company that makes ready-made meals, as well as Viscofan, a meat producer.
“Ebro Puleva was oversold and was very cheap relative to history. It is also quite a defensive stock with the consumer eating out less and it is seeing volume growth too.
“Viscofan is a long-term structural growth story with a global market. It tends to be owned by locals so when they panic out, opportunities arise.”
He said the latter stock also relates to the agricultural theme he has on the European ex-UK Growth fund, which he runs with head of European equities Mark Page, as they believe this may benefit from the Asian population consuming more meat.
The managers are also looking to play the cuts in government spending from both sides of the coin.
In Germany, the fund holds a position in Rhön-Klinikum, a company that buys hospitals from the Government and re-structures the way they are run.
Falle says the company will see increasing opportunities as governments look to realise assets.
However, he is avoiding construction, infrastructure and outsourcing stories that will suffer from tightened budgets.
Falle admits although his team is not keen on pharmaceuticals, it is closing an underweight position on the sector due to historically cheap valuations.
“We do not like pharma because it has gone ex-growth, there are massive regulatory issues and pricing problems in the US.
“But it has never been this cheap and we do not think these stocks will continue to underperform.”
