This week’s guest column comes from independent financial advisor Simon Gibbons.
EUROPEAN Equities have had quite a torrid time of it for quite a while now and, with everything that has been going on, it’s easy to see why. It’s also the major reason that many investors are steering well clear of the market.
Recently, a highly-respected US value investor, Ben Inker of GMO, commented that Eurozone equities (excluding financials) are ‘about 15 per cent cheaper than fair value’.
He then went on to point out that this broadly reflected the risk of the break-up of the Euro and the subsequent fallout. And ‘if something less bad than that occurs, the stocks are at least mildly cheap’.
This all sounds rather interesting when you consider the comments made very recently by Mario Draghi, head of the European Central Bank (ECB). In short, Draghi swore to do ‘whatever it takes’ to save the Euro.
He gave no specifics, but there is a feeling that he is considering going further than the previous attempt of Long Term Refinancing Options (LTRO), all the way to full-blown Quantitative Easing (QE).
Under QE, the ECB would print Euros and buy bonds. This is precisely what the American Federal Reserve and our Bank of England have been doing.
The ECB would look to but the bonds of the struggling periphery economies, such as Spain and Italy, which should bring stability to the Eurozone in an attempt to fend off collapse.
If that happens, then the current pricing of European equities could be considered cheap at the moment and possibly worth investment.
Of course, this is a fairly risky strategy, as nothing has been put in place and nobody yet knows the outcome; but if you think this could be something you’re prepared to take on, speak to your Independent Financial Adviser.
l You can contact Simon on 08445617578.