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Europe reaching earnings turning point, says Threadneedle star

Europe reaching earnings turning point, says Threadneedle star

With business confidence returning, and surprisingly strong economic growth, earnings of European equities are at a turning point, according to Citywire A-rated manager Philip Dicken.

‘Eurozone firms are more optimistic than they have been in 18 months. The Markit purchasing managers' index rose from 48.7 to 50.5 points, taking it above the threshold marking growth,’ said Dicken.

The return of optimism suggests an improvement in earnings, says Dicken, after a prolonged period of downward earnings revisions.

Dicken said: ‘Consumer confidence jumped to -17.4 points in July, according to the European Commission, from -18.8 points in June, beating market expectations for a rise to -18.30 points.'

'Car sales in Germany, France and Spain rose in July, while the decline in Italy was the least this year.’

Dicken added there is expected to be increased industry consolidation, which will mean greater benefits for shareholders in terms of operating efficiency, pricing power, and sales and profits growth.

‘With borrowing costs attractive, any increase in animal spirits should drive up capex and M&A activity, further supporting economic activity,’ he said, further noting cheap historical valuations of the European equity market.

Dicken runs the Threadneedle (Lux)-European SmCos Abs Alpha AE alongside Citywire AAA-rated manager Mark Heslop. He also runs the Threadneedle Pan European Sm Cos Ret Net Acc GBX since November 2005.

Since the start of 2013 till end-August 2013, Threadneedle Pan European Sm Cos Ret Net Acc GBX returned 8.93% against the benchmark HSBC Smaller European (Inc UK) Companies TR return of 15.65% in USD terms.

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