Fund of the week: time to be a bit more positive

There are several reasons to be "a bit more positive" about the economic outlook than there were a few months ago, says Feras Al-Chalabi, manager of CF Odey Continental European fund. Central banks are cutting rates, mortgage costs are falling, and on 8.5 times trailing earnings, equities are trading at levels not seen since the early 1980s.

"What stops me from being unbridledly bullish, though, is that this is a consumer-led recession, which tends to be longer and deeper than a cyclical one." More importantly, it is the result of a banking crisis, "which tends to be followed by two years of negative output".

That means European company earnings are likely to fall by 45% this year, he reckons, from their peak in 2007. But markets have recognised this and "valuations have fallen to a level that now discount the fact that we are entering a recessionary period". That's thrown up some interesting plays, including Spanish IT and defence contractor Indra Sistemas, which trades on a forward p/e of 14. He also likes telecoms because "they know what a recession looks like, have had five years of falling prices and the regulator on their back and have learnt how to cut costs". A favourite is Dutch group TPN.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

Contact: 020-7208 1400

CF Odey Continental European Fund - top ten holdings