European stocks, which have fallen 3.6 percent this month, will resume gains because Russia and Ukraine will eventually reach an agreement on Crimea, according to Didier Duret, who helps manage 168 billion euros ($234 billion) as chief investment officer at ABN Amro Private Banking in Amsterdam. The wealth manager bought more shares of companies including ABB Ltd. and Schneider Electric SA as it kept an overweight position on Europe, meaning it holds more stock than is represented in benchmark portfolios. It remains underweight on U.S. equities.
“The negative surprise from the Ukraine crisis is just an opportunity to accentuate our overweight position in European equities,” Duret said in a phone interview yesterday. “Our view is that there will be a deal. We’re not seeing a return to Cold War tactics. Once the Ukraine tension subsides, there will be more upside in European stocks than in the U.S. There’s still a good case for earnings recovery in Europe.”
The Stoxx 600 has declined 3.7 percent from a six-year high on Feb. 25 as President Vladimir Putin won parliamentary approval to use military force in Ukraine. In a March 16 referendum in Crimea, where a majority of the people speak Russian, 96.8 percent of voters opted to secede from Ukraine and join Russia.
The European Union called the referendum illegal and said it won’t recognize the outcome. The U.S. and EU imposed sanctions on Russia after the vote paved the way for Putin to annex Crimea.
EU foreign ministers agreed today to freeze assets and impose visa travel bans on 21 Russians, Crimeans and former Ukrainian officials. U.S. measures were aimed at the wealth of Russia’s supporters, the White House said in a statement.
Earnings at Stoxx 600 companies will climb an average 9.4 percent this year, according to data compiled by Bloomberg. Volkswagen AG, whose shares ABN Amro owns, said last week that new models and increasing volumes will boost profits this year. Companies in the Standard & Poor’s 500 Index will increase earnings by 7.5 percent in 2014, data show.
The Stoxx 600 has more than doubled from a low in March 2009 as the European Central Bank pledged to do whatever it takes to preserve the euro. As the bull market matures, investors will focus more on stock selection, Duret said.
“We’re seeing a lot of divergence between sectors,” he said. “In the quarters to come, being selective will be more important than the broad market direction.”
ABN Amro has increased its position on health care and materials stocks to overweight from neutral, while selling consumer staples and telecommunications companies. It is also buying European industrial- and information-technology stocks, including Dassault Systemes SA (DSY), a French developer of 3D design software, and ASML NV, Europe’s largest semiconductor-equipment supplier.
ABN Amro reduced its equity allocation to 40 percent from 44 percent and increased its cash holding to 13 percent from 9 percent of assets. It also holds 37 percent in bonds and 5 percent in hedge funds. It maintained 3 percent in property holdings and 2 percent in commodities.
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