You are here: cherry > Press releases for June 2010 > Mark Lovett, manager of the award-winning1 Charter European Trust and Co-CIO European Equities, RCM2, comments on the outlook for Europe.

10 June 2010

The situation in Europe is serious but throws up many opportunities Manager anticipates a substantial divergence in economic performance across the European countries Charter European Trust is trading at a 13% discount3 European markets “Understandably current sentiment towards Europe is downbeat as the crisis continues to unfold. However, it is important to remember that the nations causing the headlines are peripheral countries. The heart of Europe, in terms of economic growth is Germany, France and Scandinavia. These countries are benefiting massively from the devaluation of the Euro and we believe that the export-driven northern European countries will get quite a noticeable boost to GDP growth from this. “Whilst the extreme market tensions within Europe were not expected, we have been anticipating a large differential in growth between European countries and have therefore positioned the portfolio accordingly. What matters now is the duration of the problem. Country specific factors have not been an issue for the past 10 years, but now it’s an incredibly powerful factor to consider. Value of the Euro “The recent EU package is credible, very market focused and substantial in size. The debt burden is not being eliminated, it is being shared around. There is no doubt that the market is challenging the European Central Bank’s perceived conservative credentials. The actions of this organisation suggests a more expansive and, many would say, more politicised contribution to seeing us through this global credit crisis. With the International Monetary Fund being involved it is likely that the austerity packages will be put in place as otherwise the risk is that the Euro falls apart. “In the short term, the uncertainties around the execution of the imposed austerity packages will remain a drag on the Euro. If there is a perception that the southern European countries now ‘get it’ and are seen to be taking the medicine, then there is a chance that the Euro could regain its status as a reserve currency. There are a number of points of challenge before we get to that kind of stability, but if it holds together then the Euro will definitely be perceived as being much stronger for having got through this crisis. “Northern European exporters are already seeing significant improvement in their trading terms, particularly with the relative strength of the dollar and other dollar based currencies. Exports from southern European countries are not a big enough part of global trade to offset the benefit the northern European exporters are seeing from the Euro weakness. The danger is their effect on the overall union, and the risk of contagion, rather than their effect on the global economy. Portfolio positioning “Whilst Charter European Trust is not managed according to thematic views, the companies in which it currently invests fit into five broad themes, which I believe remain very strong drivers of return going forward. These are: business to business spending, the weakness of the Euro, structural growth and high financial returns where companies are re-rated, contrarian opportunities, and finally specific banks where the balance of risk / reward is so much improved. “Within the portfolio, country bias very much takes a back seat to individual stock selection, however, at present there happens to be a very heavy focus on companies based in the northern European countries including Scandinavia. There remains an emphasis on business to business spending, which is going to be a much more powerful driver than public spending or consumption over the next few years, which I have generally avoided. However the portfolio is exposed to Asian and emerging market consumer spending growth, which I believe is very strong and where stocks such as Swatch and Richemont have been incredibly robust performers.” - Ends –

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