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EM exposure is key for Europe’s undervalued firms, says AAA-rated manager

EM exposure is key for Europe’s undervalued firms, says AAA-rated manager

Many under-valued top European firms are poised to reap major benefits from a growing consumer population in emerging markets such as China and Russia through their demand for luxury and high quality goods, says BlackRock’s Alister Hibbert.

The Citywire AAA-rated manager, who runs the firm’s €485 million European Dynamic fund, believes the combination of a recovering Russian consumer market, a rising Asian middle-class and the undervalued nature of many top European firms following the crisis makes for alluring long term return prospects.

‘There are some good valuations as Europe is fairly unpopular at the moment,’ says Hibbert. ‘A lot of opportunities were created by major problems during the recession and in the stock market.'

‘In Europe investors can pick from high quality, leading global businesses, many of which are focused on the high demand areas of luxury goods, healthcare and specialist industrials.’

According to Hibbert, the market perception is worse than the economic reality as Europe tends to have very high quality franchises which are currently undervalued.

Companies such as Finnish winter tyre maker Nokian Tyres are taking advantage of a recovering automobile sector in Russia which has seen a 40% year on year growth in demand for foreign cars.

‘Russia is not talked about as much as China and India as it had an awful 2009,’ says Hibbert. ‘Banks are starting to extend credit to showrooms and that is leading to new models being brought in.’

Global watch brand Swatch is also making headway in the luxury goods sector in China as it has a 40% sales exposure in Asia ex-Japan.

‘It should be extremely expensive considering the size of the franchise but it is cheaply priced.’

The creation of a Chinese welfare state is also an encouraging sign for Hibbert as expenditure on healthcare continues to grow in a country where the middle class is set to quadruple to 1.2 billion by 2025. Danish pharmaceutical firm Novo Nordisk, pioneer of the diabetes insulin pen, is one group he is betting on as it has a 60% share of the Chinese insulin market.

‘Today, emerging markets account for around 20% of European corporate revenues across the market. This means that within the developed world, Europe offers extensive exposure to emerging market growth.’

‘Valuations are compelling on a relative and historic basis and, rather than damaging profitability, a weakening euro makes European exporters all the more competitive.’

Since he took over the BlackRock European Dynamic fund in March 2008, Hibbert has posted returns of 15.2% while the fund's benchmark, FTSE Europe ex UK TR, fell 11.5% in euro terms.

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