Dudding: Europe's multi-nationals have 'golden opportunity' to dominate

Top European equity manager David Dudding of Threadneedle thinks Europe's multi-national blue chips have a golden opportunity to dominate the business landscape despite the poor macro environment.

Dudding also believes investors were far too pessimistic on the short term prospects for European equities this year and that companies focused on emerging markets will continue to lead the market.

The FTSE World Europe ex UK benchmark was up almost 11.5% in the year to the end of October, despite its well documented problems.

The Citywire AAA-rated manager believes investors overlooked equity prices that were 'too low' relative to other areas of the world and the fundamental strength of European multi-nationals such as core holdings Nestle and Unilever.

Dudding, who runs the Threadneedle European Select and Threadneedle European Smaller Companies funds, said Europe’s poor macro backdrop masked a number of positive factors for equities on the continent.

He said: ‘People have to recognise that there is no correlation between short term growth rates and stock market performance.’

He cited China as a good example of where superior growth rates did not necessarily translate into strong equity performance.

‘No one would dispute China’s economy has done much better than European economies over the past three years and yet the stock market has gone nowhere. That is in part because it started off at very high valuations.

He contrasted that with Europe, where equities had performed well over the same period but economies had gone ‘absolutely nowhere.’

‘In the long run that divergence of performance between the macro and share prices is not sustainable but it had become very consensual to be underweight Europe so the market became very cheap.’

Dudding does not expect Europe’s economies to perform well for up to a decade, but sees a raft of potential positives for globally focused firms in the region. 

‘Realistically we don’t expect Europe to be a high growth part of the world economy for at least the next five to 10 years. They are relatively mature economies and governments are following austerity policies, banks are deleveraging and the demographics are not great.’