Artemis fund manager Simon Edelsten describes the recent popularity of European domestic names as “puzzling” when compared to the growth seen in European equities with emerging market exposure.
The manager of the £33.9m Artemis Global Select fund notes that investors appear to be flocking to European domestic names amidst little sign of economic support and even enduring profit warnings.
He says: “There seems to be an enormous rush to go off and find European domestic recovery plays at the moment. However you can only play these games if the economic backrop reality supports it.
“Last week in particular European markets went up nearly everyday, despite Siemens issuing a profit warning. It appears as though the stockmarket enthusiasm and the reality of the statements is not consistent.”
The move toward European domestic stocks follows concerns over a slowdown emerging markets, argues Edelsten. He says: “The world is going through one of those period of doubt.
”Investors are saying they don’t like emerging markets because China is only going to grow by 7.5 per cent. So people get in a very short-term mindset.”
However by contrast Edelsten continues to favour European equities with exposure to the rapid emerging market consumer growth, over domestic names in Europe.
He says: “I find it puzzling that European managers are choosing to be in European recovery stocks at the moment and don’t want to be in names with emerging markets exposure.”
Unilever is viewed by many European investors as being too expensive, according to Edelsten. However he says that this is not the case when you compare its growth against European domestic companies.
He adds: “In a global context Unilever really looks quite inexpensive at around 18x earnings. However its exposure to emerging markets will keep the company growing very vigorously for some time, certainly more than the vast bulk of European companies where European medium-term prospects are still quite muted.”
Edelsten also argues that European listed Unilever is a less expensive way of tapping into emerging market growth than investing in its emerging market listed equivalent.
He says: “Compare the approximate 18x earnings of the European quoted stock with Unilever Indonesia, which although a very different business, is also double the valuation.
“Of course the Indonesia business on its own will grow quicker than the whole mother company with its developed market exposure, but double the p/e is a huge price difference.”
Artemis Global Select’s cumulative performance to 30 July 2013
|173 / 252||83 / 248||134 / 242|
Source: FE Analytics