Investors should hunt for bargains in European markets

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Exports have stalled, but Europe remains in good shape

With Brexit only days away, this may seem “a strange time to be thinking of putting some of your… money into European stockmarkets,” says Mark Atherton in The Saturday Times. However, the gloom surrounding Britain’s departure and the European economy may have created an opportunity for “sharp-eyed investors to buy valuable European stocks cheaply”.

European markets are geared to global growth

Last year, having grown at the fastest pace in a decade in 2017, the eurozone economy cooled quickly. Throughout 2018, demand for European exports diminished. Investors were rattled when the eurozone’s manufacturing growth fell to a two-year low at the end of the third quarter in 2018. This has depressed growth in the region.

“Given that exports make up approximately half of GDP in the eurozone, a slowdown in global growth was always going to have an effect,” Tilmann Galler, a fund manager at JP Morgan, told The Times.

At the end of 2018, Germany only narrowly avoided a recession, and Italy succumbed to its third contraction in a decade. The composite purchasing managers’ index (tracking both services and manufacturing activity) hit a four-year low early this year.

Still, the region is hardly a write-off. Unemployment has continued to fall in Europe – it is now at an 11-year low of 7.8% – while wages have picked up: last December they reached a ten-year high. Falling oil prices have also boosted households’ purchasing power.

The composite purchasing managers’ index (PMI) ticked up in February, while the service sector is “showing greater resilience”, Chris Williamson, chief business economist at IHS Markit, told Reuters.

“The European economy remains in better shape than it has been [in] for much of the past decade,” Chris Hiorns of the EdenTree Amity European fund told The Times. And there may be better news ahead. European markets have climbed to a five-month high after the global rally was “given a shot in the arm by hopes that the US and China are closing in on a trade deal”, says Tom Rees in The Daily Telegraph. This would give global confidence a big boost.

In the meantime, the Euro Stoxx 50 index of the eurozone’s 50 biggest companies looks appealing on 13.2 times this year’s earnings, only slightly above the FTSE 100’s 12.6, while it yields 3.6%.

All this makes the Fidelity European Values investment trust (LSE: FEV) worth a look; it is on a discount to net asset value (NAV) of 9%.Also worthy of further research is the Jupiter European Opportunities Trust (LSE: JEO), currently on a 5% discount to its NAV.