Europe Investment ViewPoints |
08/03/2011 The year of the international investor? 21/06/2010 Noisy neighbours – the Eurozone 17/08/2009 Eurozone recovery or a flash in the pan? |
8 March 2011 - The year of the international investor?
Profile of an international investor
What would I look like if I had picked the best performing stocks in the US last year? Well…. I would like to surf and my footwear of choice would be ‘Crocs’. My job would be to produce semi-conductors for use in networking hardware that supported internet video streaming. The best news? I would have made a nine-fold return on my investment. Surf’s up! Get your Crocs on!1
Is it time for investors to look further afield?
In the UK many investors, quite naturally, choose to keep their investments close to home. At first glance, that may be a sensible strategy. An investor’s domestic market is the one they are likely to be most familiar with. There are no currency risks, no language barriers, there is excellent access to information and there is confidence that comes from the familiar.
There is also a common perception that there are barriers to investing elsewhere. In some cases it may be that investors do not know about the alternative - investing internationally. Whilst that may have been true for the typical retail investor in days gone by, for us, at the start of the second decade of the 21st century, it is far easier to gain direct access to international markets.
Why look overseas?
Whilst keeping investments close to home might seem like a reasonable approach, it could place unnecessary limits on an investor’s ability to get the most from their portfolio. There is currently a strong case for investing in international markets, particularly in developed equity markets.
In January’s edition of Compass, Barclays Wealth economists recommended investing in developed market equities, as they are generally considered one the cheapest asset classes. Although developed equity markets have disappointed over recent years, they started to ‘make good some of this disappointment’ in 2009 and 2010. The five-year forecast for these markets is strong - 5.1% per annum (vs. an annual average of 2.6% over the last 20 years). Login to view Compass or if already logged in select "Investment ViewPoint Connect" from the top menu.
Investors should bear in mind that this is of course Barclays Wealth’s view. Developed markets may not deliver good returns for investors.
US focus
Clients of Barclays Stockbrokers are singing from the same song sheet. In a recent client web poll, 30% of respondents said they expected the US market to grow in 2011. There are also promising signs that dividends and merger and acquisition activity on that side of the Atlantic are on the rise again.
In January, the Standard & Poor’s 500 Index reached its highest level since 20082. The S&P 500 Index is generally taken as a broad measure of the performance of US shares and many attribute its resurgence to strong corporate profits, resilient consumer spending and the Federal Reserve’s bond shopping spree.
Further data suggests that during 2010, consumer spending in the US grew at its fastest pace in three years. Similarly, figures from January this year indicated that factory output had increased at its quickest rate in seven years.
On the continent – European opportunities
On the other side of the pond, and closer to home, there are good opportunities for investors in Europe. Although sovereign debt issues remain well-documented, there is still the potential for good returns. In fact, during 2010, some European markets offered double or almost treble the returns that the UK did.
The top performing European market in 2010 was Sweden, the “tiger economy”, where the OMX Stockholm All Share Index grew by over 20%. This performance was fuelled by a couple of sectors which posted particularly impressive growth; in this case Trucks, Auto Parts and Industrial Machinery. Volvo AB, Scania and Atlas Copco were just a few of the high flyers. In fact, 2010 was Sweden’s strongest year since 19703.
The Swedish economic recovery was led by exporters, which in turn was bolstered by the weaker Swedish Krone and low commodity prices.
Elsewhere, Germany, the traditional European powerhouse, saw its main equity index (DAX) surge by 14.3%. Some are confident that this growth will continue into 2011. In the same recent poll, 32% respondents predicted strong growth prospects for Germany in 2011.
When you consider that, in comparison, the UK’s FTSE 100 Index grew by 7.3%, there is a strong argument for considering international alternatives.
Of course, past performance is not an indication of future performance and some might argue that these European markets may have hit their peak. Nevertheless, it demonstrates the point that taking a broader view beyond your own domestic market can increase your opportunity to make better returns on your investments – a simple case of casting the net wider.
International sectors
Investing in international equities not only allows investors to trade across a broader range of countries and geographies, it also gives them access to many more sectors.
The oil and gas sector dominated the limelight in 2010 and revealed that investors often spot and react to market news and volatile price movements extremely quickly. Clients of Barclays Stockbrokers behaved the same way. Having full access to a sector, across global geographies is a great advantage for investors. For example, if an investor was interested in exploring equities in the technology sector, they would not be able to trade companies like IBM or Apple without access to US markets. An international perspective on your investing can compliment an existing investment strategy and broaden the choice you have in your particular areas of interest.
Asset allocation and international portfolios
Spreading your portfolio across a range of geographies and global sectors has long been a favoured approach of the savvy investor. At home, UK interest rates are at an all time low, making it difficult for investors to find returns. As a result, many investors who are prepared to take a risk are now looking further afield, as cash is struggling to keep up with inflation.
Equity markets look attractive at the moment, as they can offer decent yields and inexpensive valuations. Global stocks have nearly recovered to pre-credit crisis levels and the economic mood at the beginning of 2011 is optimistic (albeit mixed). For the educated investor selecting a global portfolio, rather than a UK-only one, there is a great range of opportunities.
Think of what your portfolio could look like - Apple alongside Astra Zeneca, Boeing next to BP or Coca-Cola with Centrica.
As with every type of investment that is linked to the health and performance of the global economy, investors need to be vigilant in monitoring the markets. Recent events in the Middle East, Libya in particular, have revealed how quickly the global economy responds to regional or sector specific news. It is important for investors to consider the impact that global events will have on their portfolio. This is all the more important if your investments are diversified internationally. Some events can have a global economic impact, others can be more localised.
Things to bear in mind
When you travel abroad, it is always wise to think about your safety. Investing internationally is no different. You should ensure that you are aware of all the potential risks and downsides before investing overseas. This extends to making sure you research the regions you are interested in and fully understand the product in which you are investing. You also need to bear in mind that international investing comes with a currency risk. Fluctuations in currency could have a negative impact on the value of your investment.
You spoke, we listened
We have seen that more and more of our clients are looking for exposure to international markets, with higher levels of demand for Exchange Traded Funds and managed funds with an international focus. We are always looking to ensure that we provide a range of products that can allow clients to take advantage of international investment opportunities. For example we launched the Barclays Wealth Global Markets funds range in the last part of 2010. Now, for those clients who wish to pick their own international stocks, we have launched International Trader.
What is International Trader?
International Trader is a state-of-the-art online trading platform which provides 24/7 online equities trading, with access to 13 international markets and 21 exchanges. Each user can customise the platform to suit their individual preferences.
21 June 2010 - Noisy neighbours – the Eurozone
In a week where complaints about the vuvuzela, the ear-shattering horn being used in South Africa, have reached a crescendo there are similar rumblings of discontent continuing across the Eurozone. This week’s Investment ViewPoint Comment takes a look at some of the headlines across the Eurozone and assesses what this means for investors and markets alike.
Noise vs insight
A famous football manager once said “football is nothing without its fans” and perhaps the same can be said that football in South Africa would not be the same without its vuvuzela. The incessant noise certainly does catch your attention but what would it be like without it? Would the quality on the pitch be any better? The noise does appear to generate an atmosphere in the stands but perhaps there needs to be more focus on what is actually happening on the pitch! The same can be said for financial markets. It is important to focus clearly, ignore the noise and concentrate on the important matters. There is often background noise – short-term market movements, rumours and conjecture are all difficult to ignore but it is essential to remain focussed on important matters – if the fundamental reasons for making an investment remain solid, then the distractions should be ignored. So let us take a look at some European countries central to the ongoing economic crisis across the Eurozone and see how they are lining up to meet the economic challenges ahead.
Germany vs Greece/Spain/Portugal
Football fever has truly captured the attention of the watching world as the greatest show on earth enters its second week. As expected Germany made a strong start to the tournament beating Australia 4-0, but subsequently being beaten by Serbia shows that even this footballing and economic powerhouse is not immune from setbacks. Having announced decisive action to address its budgetary deficit , the German economy looks set to benefit from the weak Euro to export its way out of recession. Last week German bunds held up despite bond prices falling in Greece and Spain after Moody’s finally cut Greece’s credit rating to junk status, underlining the volatile nature of Greek markets at this point. Greece’s opening defeat in South Africa was damaging but having pulled out their first ever world cup win against Nigera, they are showing the determination needed to turn things around … if only the economy responds in the same way.
Traditionally investors will look for safe havens in times like this with Germany continuing to be viewed as a popular destination. The DAX Index is currently trading at around 6320,up around 16% from a low of 5450 just 4 months ago. German companies tend to dominate the pan-European indices (eg EUROSTOXX 50) and with a European market of circa 500 million people as well as a weak Euro to boost exports, the odds are that they will remain strong.
Given that Spain is due to raise money to help fund the €16.2 billion of debt that is set to mature on July 30, market sentiment is of paramount importance. It takes us back to when the Greek bond maturities required ECB and IMF intervention via a bail out package to stabilise the situation. A degree of contagion has no doubt already been built into the current level of the Euro, but if the doom mongers take hold and serious concerns surrounding Spain find foundations in the fundamentals of that economy, the scale of the resulting crisis may well dwarf what has been seen so far.
Keep abreast of the fast moving events of the Eurozone through the Barclays Wealth daily briefings and for more in depth analysis login to your account to see the latest see Compass and Signpost publications
Those seeking exposure to the performance of the major Eurozone companies may wish to consider the iShares EUROSTOXX 50 (Ticker: EUE). This is an designed to track the performance of the EUROSTOXX® 50 Index which offers investment exposure to 50 of the largest Euro zone companies, and could be well placed to benefit from any growth in European exports.
Bear in mind that you cannot win them all, the value of investments into products such as managed funds, Exchange Traded Funds (ETFs) and equities, can fall as well as rise. Your capital is at risk and you may score an own goal and get back less than you invested.
17 August 2009 - Eurozone recovery or a flash in the pan?
Following on from our Investment ViewPoint from the 20 July ‘The shape of things to come?' recovery seems to have come earlier than expected at least for some but is it a flash in the pan or the beginnings of a recovery for the eurozone?
Thursday’s announcement from France and Germany that growth was back in positive territory with GDP up 0.3% following four quarters of negative growth surprised economists who had been predicting contractions. Stronger exports and consumer spending, as well as government stimulus packages seem to have been the main contributing factors to this.
This positive news from the two biggest economies in the eurozone, who between them account for approximately 48% of the areas GDP, helped contribute to lower negative growth - GDP in the 16 country bloc was down only 0.1% in the last quarter. Although not increasing as yet it was certainly an improvement on the 2.5% decrease in Q1.
In contrast the UK saw GDP fall back 0.8% with The Bank of England’s Inflation Report striking a mixed message. On the one hand, the Bank made clear that market expectations for the path of interest rates would cause the inflation target to be undershot, hinting rates will need to stay low for longer than is currently priced in. The Bank also stressed that it was disappointed by the impact of quantitative easing and lending growth so far. On the other hand, the Bank raised its growth forecast for 2010, albeit starting from an even weaker 2009 growth rate than it forecast a quarter ago.
The fact that Germany and France can now say they are technically out of recession, while the UK is still in it, is certainly positive news for German Chancellor Angela Merkel who faces both an upcoming election and no doubt continued opposition at next months G20. However, some commentators think it might still be a little early to relax as a return to negative growth in coming quarters cannot be ruled out. So what shape do you now think the recovery will take?
Read our Investment ViewPoint from the 20 July ‘The shape of things to come?' for more on the different scenarios for recovery shapes and what they mean, including our recent Smart Investor email feature ‘Market Recovery’.
What’s your view?
If you are interesting in gaining exposure to the eurozone you could consider exchange traded funds (‘ETFs’) which aim to track European benchmarks and offer weightings in French and German stocks. Take for example the iShares DJ Euro STOXX 50 (EUE) or iShares FTSEurofirst 80 (IEUR). See our iShares factsheets page for a full list of available iShares which trade on the London Stock Exchange. ETFs are traded like shares and may not be for everyone. They closely track the performance of an index and as such their value can go down as well as up and you may get back less than you invested.
Remember that you can stay close to market activity throughout the day by visiting our Research Centre and tracking the movements of the index or equities of your choice.
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