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France is black mark in hunt for European bargains

France represents the biggest threat to an increasingly stable eurozone, say investors.

 
France is black mark in hunt for European bargains

France presents the biggest threat to eurozone stability, according to global investors managing $664 billion between them, though the crisis in Europe takes second slot behind the US fiscal cliff in money managers’ list of potential woes.

Investors have been gradually mopping up European shares at knock-down prices. And for the first time since November 2010, fund managers have a bigger weighting in European equities than in US shares. They are still largely avoiding domestic focused sectors in Europe though, according to the survey from Bank of America Merrill Lynch (BoA ML).

Even though the fiscal cliff is a bigger concern than the eurozone crisis – 22% see EU debt concerns as the ‘biggest’ tail risk, down from 65% in June – fund managers are still worried about weak growth and European corporate profits.

French risk

France, the second largest economy in the single currency bloc, was deemed by 31% of investors as posing the greatest ‘tail risk’ for Europe. Though BoA ML had not asked this question before in its monthly survey, Spain and Italy are normally seen as the most likely of the eurozone nations to re-ignite a full-blown crisis.

Although France has narrowly escaped technical recession so far this year, there are growing concerns about the lack of competitiveness of its economy and its reliance on government spending, as well as the exposure of French banks to its neighbours' economies.

Though France’s debts aren’t as bad as some other countries, investors are concerned by the lack of will under president Francois Hollande to make reforms.

So far bond markets, which have punished other countries like Spain and Italy, have given France the benefit of the doubt.

But while Fitch has maintained France’s credit rating at AAA (with a negative outlook), Moody’s downgraded France in November and Standard & Poors’ did the same in January.

Investors optimistic about 2013 - but not Japan

Overall, the tenor of the BoA ML survey is one of increasing optimism about global economic growth and stock markets. This coincides with upbeat forecasts from banks and investment houses for the year ahead after most major financial asset classes made surprisingly strong gains this year in spite of concerns over the eurozone, Chinese economy and impending US fiscal cliff.

The BoA ML survey, conducted from 7-13 December before this weekend’s Japanese election handed victory to stimulus-friendly Shinzo Abe, showed the Japanese stock market remains a big underweight for investors.

Emerging markets were the preferred regional overweight.

7 comments so far. Why not have your say?

David Walker

Dec 23, 2012 at 19:18

Please get rid of pop ups. We know about the article from the front page

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John Osborne

Dec 23, 2012 at 19:34

I agree, the pop-ups are an unnecessary annoyance.

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john_r

Dec 29, 2012 at 16:36

What pop-ups?

I don't see any pop-ups, perhaps I have a decent browser.

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snoekie

Dec 29, 2012 at 17:41

Agree on the pop ups.

French debt will increase as the civil service will only get larger, require more money and be the white elephant that France cannot afford, with it constituting something like 60% ++ of GDP to support. Time for a reality check, that Hollande will duck and obfuscate on, whilst probably demanding more CAP subsides (which the EU will grant) to keep France going, whilst settling ever lower in a stormy sea. Soon it will be swamped until the leaks are plugged and ballast jettisoned.

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John Osborne

Dec 29, 2012 at 17:42

Citywire in their wisdom (or lack of it) have started plugging their articles by sending a popup which appears on the bottom left hand corner of the screen when accessing any page.

For example, this time "The Bumper Guide to your finances 2013 by Lourna Bourke on Dec 29 at 0701" appeared when I accessed this page.

To people without a popup blocker enabled this is an annoyance particularly because even after deleting the popup it re-appears every time you change page.

For some reason Adblock Plus add-on I use is not effective in stopping it, but as you point out there are other ways.

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snoekie

Dec 30, 2012 at 04:28

John, I have one, and it works, but the knaves at Citywire have squirmed their way past.

Tried Chrome once, didn't like it.

PS, Sod "The Bumper Guide to your finances in 2013"Yesterday's punted item!

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John Osborne

Dec 30, 2012 at 13:29

Snoekie,

Thanks, I will look into that. I use Firefox.

All finance organisations and advisors have gone into their usual end of year overdrive to write forecasts that are rarely worth the paper (or PCs) they are written on. Small companies and growth economies are usually the best performers coming out of a recession which difficult to see end of until too late so am changing my allocations accordingly. Agree with you over France of course, Hollande is a big negative, same old story with socialist governments and it looks like due to the incompetence of our present lot, we will have another dose.

Complements to Dislexic, I wish I was as skillful in investing as Dislexic is in managing property business.

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