MARKET VIEW: THREADNEEDLE SEES 40% UPSIDE FOR EUROPEAN EQUITIES

Western equity markets have been trading in a range for the past year. At times they have traded towards the top as optimism has grown, at which time investors have hoped that prices will break out to the upside. Conversely, on approaching the bottom of the range there has generally been fear that the causes of the weakness (economic slowdown, burgeoning deficits) will precipitate further falls.

Lately there seems a realisation that markets are indeed trading in this range and hence a belief that there isn't much to gain from investing in equities, particularly given the angst provided by the risks. Conversely, William Davies, Head of European Equities at Threadneedle, believes that European equity markets can provide a total return of some 40% over the next two years. He also believes there is a good chance we will break out from the current trading range quite soon, probably this year. In any case, if there are 40% returns over the next two years it matters less whether the rises start now or some time later. More importantly, we should be positioned for these rises now. Although he has stated that European markets can return 40%, he also believes that other Western markets will provide similar attractive returns and that the next two years will see renewed interest in returns from equities.