Having been to another of BCA Research’s (Bank Credit Analyst to you and me) very useful breakfast (aaargh, the time) strategy sessions, I recently changed my Strategy 2015 Part II rather sniffy view of Europe. Only, I hasten to add, as regards equity investment currently. The European currency remains, well, Euromess. I have re-entered an Italy tracker for clients and self. (For fun – not for clients, too hairy, have made a small ‘play’ in an Athens tracker, market down over 80%.)

The European economy, notably Germany and Spain, was fast beginning to crawl off the floor anyway. But, if maintained, the currency and oil price decline should add about 1.5% to GDP growth, a significant number compared with not much more than schnix previously expected. Further, the fiscal policy depressant is ending. More important, forecasts of corporate profits, having declined remorselessly year by year since 2011, are now finally being raised. Psychologically Europe has been unpopular – a state of affairs that always attracts my interest. If lots of people agree with you in this business it is likely that you are wrong. Better to be the investment outcast at the 19th Hole. Being an only child, I have no problem with this sort of thing. Lastly, on valuation, the numbers are reasonable, if not overwhelming. Certainly viz-a-viz the Shiller PER - about 16 (Italy 8.5, Greece 3.4) versus US 26.

Caveat. Given the current absurd financial environment risks are so high that an “all bets are off” situation could (and likely will) occur at some stage. Trading skills are at a very high premium currently. Buy and hold medium term. Generally speaking, - dangerous. Though there are exceptions. Interestingly, fund managers have been selling out of UK equities, bar nine months, for over a decade. This is surely bullish (source: FT 24/02).

David Fuller's view

Here is Peter Bennett's Letter.

In recent months, the EU has been a catch-up play, not least thanks to Mario Draghi.  Most of the EU stock markets are currently overextended, on a short-term basis, and may now be commencing a reaction and consolidation phase.  Thereafter, I would not be surprised to see further recovery moves, fuelled in part by QE which commences this month and runs until at least end-September 2016. 

Peter Bennett is a wise observer, in my opinion, having known him since 1970.  In particular, note his lengthy comments on bonds, both government and corporate.  This is certainly the area to focus on in terms of medium to longer-term risk.