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AA-rated Weis backs Europe for major earnings upswing

AA-rated Weis backs Europe for major earnings upswing

European equity veteran Franz Weis has highlighted improving earnings as a major trend for investors in the region over the coming year.

Citywire AA-rated Weis, who currently manages several funds at Comgest, including the Comgest Growth Europe fund, said strong corporate and consumer confidence creates a favourable context for corporate earnings growth across the region.

‘In a marked change from the past 10 years where earnings consistently disappointed, earnings revisions have recently turned positive. There is a consensus expectation for a potential increase of +10% in 2018, a rate above the historic long-term average.

‘The outperformance of growth versus value in 2017 was less pronounced in Europe than in the rest of the world. The US and emerging markets’ high exposure to the FANGs and BATs, and their generally high IT exposure has been the major driving force for performance in these markets.’

In contrast, Weis said the upswing has been broader in Europe and said if there are any setbacks for these stocks, European equities may prove less vulnerable and more defensive due to their lower benefit from these stocks.

'European equities present a compelling investment case for the upcoming year. Although a lot of political uncertainty ended in 2017, Brexit is likely to remain a headache.

'In the UK, the rise in inflation, the first hike in interest rates since the financial crisis and a softer property market are creating worries about Great Britain’s weaker economic growth.

'The negative impact on the pound and the UK stock market has been exacerbated by the lack of progress towards a benign Brexit,' he added.

As a result, Weis said the total net return of the MSCI Europe in 2017 lagged significant aggregate earnings growth, valuations came down substantially throughout 2017.

Over the three years to the end of December 2017, the Comgest Growth Europe fund returned 27.70% in euro terms. This compares with a 25.05% rise by its Citywire-assigned benchmark, the FTSE World Europe TR EUR, over the same time period.

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