AMP Capital Investors Ltd., a unit of Australia’s biggest asset manager, is buying stocks in Spain and Italy amid signs their economies are recovering and as equity valuations remain below global averages.
“We’re seeing a lot of green shoots coming out of Europe, and together with a very, very strong valuation buffer, that suggests we better make our money work in Europe as opposed to emerging markets, where there are uncertainties,” Nader Naeimi, head of dynamic asset allocation at AMP Capital, which manages more than $130 billion, said in an interview in Sydney today. “Recessionary conditions are abating.”
Spain’s IBEX 35 Index gained 3.3 percent this year and Italy’s FTSE MIB Index added 1.3 percent, lagging gains in the U.K., Germany and France. They all rose less than the 18 percent surge in the Standard & Poor’s 500 Index as bond purchases by the Federal Reserve coupled with improving earnings and economic growth sent the U.S. gauge to a record in July.
While the S&P 500 Index has recovered all of the gains erased during the financial crisis, Spain’s benchmark remains 47 percent below its peak in November 2007 and Italy’s gauge is 63 percent lower than the level reached in May 2007.
The European Commission’s gauge of economic confidence in the euro area climbed to the highest level in 15 months in July. The Euro Stoxx 50 Index, of mainland European shares, trades at 12.2 times estimated earnings, compared with a multiple of 14 for the MSCI All-Country World Index of developed and emerging market companies, according to data compiled by Bloomberg.
The MSCI Emerging Markets Index tumbled 10 percent this year through yesterday as growth slows in China, the world’s largest emerging economy, and speculation the Fed will reduce stimulus spurred international investors to sell riskier assets.
Naeimi, who correctly predicted an 18 percent correction in Japan’s Topix index that began in May, joins a net 3 percent of money managers who hold more European shares than are represented in benchmark indexes, according to a Bank of America Corp. survey last month. The participants manage $643 billion.
Economies across the euro currency bloc have shown signs of improvement. Business confidence in Germany, Europe’s largest economy, increased for a third month and unemployment held near a two-decade low in July. Spain’s economic contraction slowed to 0.1 percent in the second quarter from 0.5 percent in the three months through March.
Europe’s unemployment rate held at a record-high 12.1 percent in June, according to data from the European Union’s statistics office in Luxembourg yesterday. Spain had the highest rate at 26.3 percent.
The Italian national statistics institute Istat’s manufacturing-sentiment index increased in July to the highest since November 2011. Business confidence rose for a third month as the country battles to emerge from its longest recession in more than 20 years.
“We don’t need to wait for those fundamentals to be outright good before we become positive in those markets,” said Naeimi.