Guy Lerminiaux, CIO Fundamental Equity at DPAM, provides some background on our strong investment case for European equities. Indeed, in our overall asset allocation framework, we remain overweight in this sub-segment.
“Looking at the macro-economic front, we still see decent growth in Europe, despite a recent hiccup as a result of some geopolitical tensions and primarily the elections in Italy. On a macro level, the climate remains benign, with inflation remaining modest and no excessive wage pressures” he explains.
Now when looking at the European equity asset class, we clearly see attractive valuations. At 14.2x time forward earnings, there is still room for multiple expansion as we see that profits of European companies are catching up. Also when comparing dividend yields to bond yields, we see a compelling case to be invested in European equities. The market correction of February and March, coupled with earnings growth, has pushed valuations down to the lowest level in three years. Meanwhile, monetary policy in the eurozone remains accommodative.
Guy Lerminiaux: “We have not been scared by the recent sell-off we have seen as a result of the political upheaval in Italy. On the contrary, in the portfolio we have accumulated some interesting Italian companies which are mainly focused on exports. I think of companies like Ferrari, Campari, Autogrill or Mediobanca. The political turmoil is no reason for us to sell anything. Indeed, about every year we see a new government. Our conviction remains unchanged: Italy will remain in the eurozone.”
Isn’t then political instability an issue to companies? Again, Guy Lerminiaux remains unfazed: “Overall I believe that the link between political drama and the valuation of companies becomes weaker year by year. I would like to make the comparison to our home country of Belgium. We have not had a government for a long time, but companies kept on working and generating profits. This comforts my view that as active stock-pickers geared towards the long term, we should first and foremost look at the individual investment cases of companies. This is what we have been doing for nearly three decades, and it has rewarded us handsomely.”
