Invesco Canada blog

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Michael Hatcher | February 7, 2012

Steps toward a stronger and more competitive Europe

Amid all the doom and gloom surrounding Europe these days, one positive outcome of the sovereign debt crisis is that it has forced eurozone member states into discussions that should result in a tighter fiscal union. I believe a monetary union is simply not sustainable without a fiscal union (or at least a cohesive fiscal policy).

The current combination of no or low economic growth and the austerity measures (which may exacerbate this no-/low-growth environment) is also forcing a serious look at structural policies that have made Europe less competitive: labour mobility, union issues, etc. If we want to see a stronger and more competitive Europe going forward, these are the kind of steps that simply must be taken. In fact, the issues they are now tackling likely would have been have been ignored without the crisis to spur a desire for change.

What does all this mean for investors? The overall macroeconomic environment has led to a significant de-rating of the European market. This can be seen in the widening discount of the relative P/E ratio of European stocks versus North American stocks. The recent underperformance has resulted in the European market becoming significantly cheaper than those of Canada and the United States.

All things being equal, we believe these cheaper valuations should bode well for European returns over the coming years.

Read the Trimark Global Fundamental Equity Fund 2011 year-end review for more on global equity markets.

 

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4 responses to “Steps toward a stronger and more competitive Europe

  1. Hi Michael
    I attended the Invesco event in Edmonton earlier this week. I really appreciated your comments and insights into stock picking and opportunities out there. It is refreshing to hear some positive news rather than the doom and gloom we hear from the media. This event was my first Invesco event and I feel I have a better understanding of the process you go through in order to provide the very best companies in your portfolio. Thank you for being there and sharing your passion with us.

    1. Donna, it’s good to hear you made it to the roadshow and found value in the presentation. Thanks for taking the time to comment.

    1. Hi Rob, thanks for the question. We are always trying to identify companies with competitive advantages and strong market positions. Certain oligopolies possess these traits and tend to be a good hunting ground for investments. The Europlus Fund continues to own a number of companies that operate in effective oligopolies. Having said that, there are many companies that have competitive advantages and strong businesses that do not operate within oligopolies. It comes down to company by company analysis.

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