Horseman Says Forget French Election, Europe Is A Buy!
Forget about Marine Le Pen or any ramifications of her election in Europe, Horseman Capital Management’s Stephen Roberts says. Europe is a bargain based on old school fundamentals as economic growth is rampant throughout the region.
Horseman Capital – Turning a new leaf, Horseman turns market bull, says ignore negativity
It has been difficult to be a European bull, the UK-based Roberts bemoans. Domestic economies have historically been more slacker than star, based on their earnings growth.
The turn to bullish cheerleader is a new tone for Horseman, often known as one of the world’s most bearish hedge funds.
Highlighting a culture traditionally more focused on an employment safety net than providing corporations a clear runway to do whatever it takes to generate profit growth, its political leaders have been “slow in pushing through reforms and the political backdrop has resulted in many investors avoiding it as an investment.”
That was the Europe of old, Roberts says in a March Market Views note to investors titled “A Bull Case For Europe.” The New Europe is a different place, one where any concern about the rug of a major economy being pulled out from under the European Union should not be considered against the backdrop of what is a tremendously bullish economic launch pad.
Horseman Capital – Strong EU fundamentals
Germany is without question the winner in the EU economic derby. Headline unemployment is just one economic statistic to tell the story. At its lowest level on record, unemployment has fallen from 11% in 2006 to 6% today. The euro currency is often credited as keeping the German economy competitive, as its relatively low value when combined with other regional economies allows exports to flow from the mighty economic machine in a way that would never be possible if Germany’s traditional currency, the mark, were in existence.
The stunning low employment comes as the German inflation rate has moved from near zero in 2015 – a time when central bankers were pining for inflation to appear amid stagflation concerns – to near 2% today, showing signs of economic life.
“The Germans have been talking about higher interest rates for a while, but even the European Central Bank (“ECB”), for the first time, have discussed potentially increasing them, even with Quantitative Easing still ongoing,” Roberts wrote, pointing to the dream economy.
But it is not just the economic engine of Europe that has advanced. The Spanish government has done fantastic work at increasing the age at which Spanish workers can take their pension while at the same time reducing the minimum wage. As a result, the outlook is improving with GDP growth at 3%, astronomically high unemployment levels coming down and the current account balance turning positive for the first time.
But it is not just Spain, but also one-time economic laggard Ireland that is “benefiting from the tough decisions it took during the financial crisis.” Irish GDP grew in the fourth quarter of 2016 by a stunning 7.2% and the Dublin property market is surging, as high-profile firms such as Facebook are planting their European headquarters on the island.
This is an amazing economic transformation that should be cheered by investors, who should ignore concerns about the French leaving the European Union.
“While investors are currently concerned about the possibility of Marine Le Pen coming into power, profit growth at European companies in the last quarter quietly outperformed the US for the first time in eighteen months,” Roberts worte. “Despite this, the STOXX 600 currently trades at 15x Forward EPS, which compares to nearly 18x for the S&P 500.”
Cheap indeed.
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Source: valuewalk