Where's the port in this euro storm?
Greece's meltdown and other crises within Europe are leaving investors wondering where to turn. Julian Knight investigates the options
Sunday 06 November 2011
The bookies don't often get it wrong and, according to Ladbrokes, Greece leaving the euro is now odds on.
Referendum or no referendum, political instability writ large in Athens and the big powers of Europe running out of patience perhaps signal the end of Greece's membership. If Greece were the only country to be sliding to the euro exit door, then the crisis would not be all that bad. But in addition we have Portugal, Ireland – which despite undergoing an economic recovery is still in the eurozone emergency ward – Spain and the biggest worry of the lot, Italy.
No wonder doomsday scenarios abound, but what are you as the private investor meant to make of all this? What protection can you put in place, and what potential is there to make a sound investment?
It would be a brave investor who looked at the screens of red numbers on the European indices last week and saw it as a buy signal. "The successive schemes hyped as a solution to this crisis seem to be falling down at an ever quicker pace and this is reflected in the market moves of this week," said Tom Stevenson, investment director of Fidelity.
For Greece, it might not be the beginning of the end of the crisis but the end of the beginning. "When we had what seems like a deal fleshed out a week ago the markets surged about 6 per cent, but have lost more than that since as it has unravelled quite spectacularly," said Adrian Lowcock from Bestinvest. "The truth is we don't know where this will end it could be blow up in a big way in which case markets will take a hit."
But where there is bad news and uncertainty there may be opportunity. "If you're the ultimate contrarian investor, then maybe Europe is the place to go over the next five years," said Darius McDermott, managing director of Chelsea Financial Services. "It's like the old investor maxim of investing on the sound of gunfire, that when everyone else is heading for the exit then it's usually time to pick up some bargains."
Just going by the numbers there are a lots of cheap company shares out there. "We aren't quite at all-time lows for price to earnings ratios (the price of a share relative to a companies earnings) but we are not far off. Good companies are trading at a nice low price which may be seen as a bargain in the years to come," said Mr Stevenson.
Mr McDermott adds that the last time there were similarly low price to earnings in Europe in 1982 this was followed by three successive years of above 20 per cent annual share price growth. And company dividends are high as well. "The Ignis Argonaut European income fund run by Oliver Russ is seeing annual dividends of 6.2 per cent; elsewhere above 5 per cent is commonplace," Mr Lowcock said.
Any dividend income north of 5 per cent is not to be sniffed at in an environment where cash savings accounts on average are returning less than 1 per cent. "Don't just look at the price of a particular stock but its dividend: long term much of the growth on an investment come from the dividend the company pays," Mr Stevenson said.
However, according to Mr McDermott, despite the tempting numbers there are compelling reasons to stay well clear of Europe, even relatively prosperous and economically sound Germany. "Continental share markets are cheaper than both the UK and US but they are cheaper for a very good reason. We don't know where this is going to end and, on balance, I'm quite bearish," he said.
But, if investors must have a slice of the European action, the advice of the experts is to choose their manager carefully and to drip feed cash rather than invest large lump sums. As for managers Mr McDermott favours Blackrock's Continental Europe fund and Neptune's European opportunities. Mr Lowcock is also a fan of Neptune's fund and Ignis Argonaut's European income offering.
Even fund managers whose job it is to be invested in European companies are treading very carefully. "Some valuations of companies are cheap but that isn't the be all and end all," said Ian Ormiston from fund management group Ignis. "I am concerned that a lot of the profit forecasts for next year in eurozone companies haven't properly been taken account of the impact on confidence of the crisis. Many European indices still have weighting towards the banks which are obviously going to be in the frontline of the crisis. At present I am looking at companies which trade well globally. Take VW, for instance. It may be a German company but it has realistic growth plans for the Chinese and US markets."
But the smart play for investors may be to use the crisis in the eurozone to reassess where they have their money. "The old idea that you should have the overwhelming majority of your money in the UK and Europe is changing. People are rightly looking further afield at the emerging and so-called frontier markets (smaller economies which are growing fast) for returns," said Mr Stevenson. But for those whom an investment in emerging markets is a little too harum scarum they could look over the Atlantic. "In developed economies if I was looking at the US against the eurozone I would look at America first. The numbers there are much better and the corporate sector is quite profitable," Mr Stevenson said.
Donald MacInnes: Who would want to be a Barbie girl in a non-Barbie world?
Mark Dampier: How to get an income now that savings are past the 'use by' date
Thousands of UK investors could lose out following collapse of Secured Energy Bonds
Bargain Hunter: Fly off for a winter break in France or Portugal for well under £100
Millions in line for compensation after being sold unnecessary credit card cover
- 1 Stephen Fry explains what he would say if he was 'confronted by God'
- 2 City traders pay £200 for a quick hangover cure
- 3 Venezuela Expo Tattoo 2015: Extreme body art from 'Vampire Woman' to 109mm earlobes
- 4 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 5 Ball pool for adults opens in London
Stephen Fry explains what he would say if he was 'confronted by God'
9 reasons Greece's experiment with the radical left is doomed to failure
Have we reached 'peak food'? Shortages loom as global production rates slow
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
President Putin is a dangerous psychopath - reason is not going to work with him
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion