Columbia Threadneedle: Finding opportunity in Europe’s volatility

Columbia Threadneedle: Finding opportunity in Europe’s volatility

14 januari 2019

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By Philip Dicken, Head of European Equities

By Philip Dicken, Head of European Equities

Looking back at 2018, it was a year when European corporate earnings continued to grow, while market volatility was surprisingly high. The volatility was a result of both political noise and the fear of a slowdown in global growth.

Volatility first spiked in February and then in October 2018 as investors responded to fears about macroeconomic events. The more enduring and significant concerns were centred around China's growth rate, the protracted Brexit negotiations and Italy's controversial budget and these issues are unlikely to disappear in the short term.

But, rather than allowing political instability to distract us, we are concentrating on companies' prospects. Going into 2019, this volatility has left stocks trading more cheaply than before and we anticipate them reporting earnings growth averaging 5-10%. At the same time, there are companies set to benefit from underlying positive long-term trends that we can buy more cheaply than before.

There is a lot of noise in the market at present and it is very easy to create a negative scenario, but we still expect positive economic and earnings growth. So, there are good opportunities for stock pickers.

Populism challenges the EU

In 2019, we anticipate that European economies will continue to recover, albeit slowly. Short-term risks still exist, which could result in slower growth. For example, Germany surprised by reporting negative GDP for the third quarter of 2018.

Political risk looks likely to persist during the year, but we are keeping calm and carrying on. We have modelled a range of Brexit scenarios. Of course, uncertainty remains

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