Europe is going through an ‘unspectacular recovery’ as although confidence in the region is slowly improving, the market is certainly not booming, says Andrew Parry of Hermes.
The CEO of London-based Hermes Sourcecap told Citywire Global he has been more cautious on the European recovery than current market consensus would recommend for the past few months.
‘European recovery is unspectacular as the core problems of the region haven’t been fixed yet. The bloc is completely unprepared to cope with a normalised situation of higher interest rates,’ he said.
Parry said the word ‘normalisation’ is often misplaced. ‘Normalisation means rising interest rates and halting the expansive central banks’ policies. But where would the European and the global economies go without the central banks’ support?’ he said.
The Sourcecap CEO said a big change in the region lies in the investment opportunities it's starting to offer again.
‘All Europe now is investable, whereas large parts of it were not until few quarters ago. It doesn’t mean it is necessarily a good investment,’ he said.
According to the manager, valuations have started to rise significantly. ‘Europe is no longer a bargain, although it’s still cheaper than the US market.’
Parry has recently started to see a slight rise in the confidence levels of European managers. ‘They are more positive in general. They feel able to take more decisions as a result of a higher degree of stability and confidence,’ he said.
The Sourcecap CEO looks favourably on the healthcare and technology sectors, as they offer a good range of innovative companies at reasonable valuations.
He also likes some of the so-called ‘self-help companies’, in particular in the automotive (Valeo, Renault) and telecommunication sectors. ‘Some firms are cutting costs and restructuring their businesses to regain some profitability in the near future,’ he said.
Speaking about the ECB, Parry said Draghi has done a good job of spurring on the European recovery.
‘Draghi has done a good job engendering a recovery without massive interventions in the market. If recently he had to act more decisively, it was to fight against the euro strength,’ he said.
According to Parry, an example of how an extra-loose monetary policy doesn’t solve everything is Japan. ‘I am sceptical on Abenomics. I don’t think inflation is the solution to an economic malaise. Japan needs the third arrow to start growing again,’ he concluded.
Hermes Sourcecap comprises an 11-strong equity investment team led by Euro Stars A-rated manager James Rutherford. He oversees two European equity funds: Hermes Sourcecap European Alpha and Hermes Sourcecap Europe Ex-UK.