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European equity opportunities rise in Asian HNW sector

European equity opportunities rise in Asian HNW sector

This year high-net-worth investors in Asia are looking to invest in Europe given the region’s improving macroeconomic fundamentals and corporate profitability.

That’s the view of Mandy Lui, head of wholesale distribution for China, Hong Kong, and Singapore at BNP Paribas Asset Management.

‘While the firm believes in the fundamental growth of European corporations, we also expect many short-term volatility, especially from political risks, such as Brexit and Catalonia Independence, as well as other global risks and potential correction that may affect Europe,’ Liu said.

‘Therefore, despite our belief in European equities, we also believe in strong risk management,’ she told Citywire Asia.

Rory Bateman, head of UK and European equities at Schroders said his firm tends to see volatility around political events as a potential buying opportunity.

‘Political risk can often be excessively discounted, meaning that stocks can fall to valuations that do not reflect their fundamentals.

‘This can give active managers a chance to be opportunistic and buy stocks at very attractive valuations,’ he added.

According to a report published by Eurostat, the gross domestic product of the euro zone expanded by 2.5% in 2017. This is the strongest growth rate since a 3% rise in 2007, the year that the global financial crisis broke out.

Furthermore, Bateman believes that low inflation and falling stock market correlations will contribute to strong returns in pan-European equities.

He said in a low inflation environment, equities can provide a strong alternative to low yielding competing investments such as fixed income, which in turn offers scope for a lower equity risk premium.

This is the return above the risk free rate that compensates stock market investors for taking on the relatively higher risk of equity investing.

Over the past few years, stock markets have primarily been driven by macroeconomic factors, such as quantitative easing, which means correlations have been high.

‘This has already started to change and we think the trend of lower correlation – both between sectors and within sectors – should continue,’ Bateman said.

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