The exchange rate of the euro versus the dollar and emerging market currencies of course has a massive impact on the attractiveness of certain segments of the equity market.
Maria Municchi of M&G Investments represented a peripheral Eurozone point of view, warning that the euro being a ‘non-competitive currency compared to the dollar’ could become a serious liability to European competitiveness on the longer term.
Figure below: The dollar-euro exchange rate. The euro is cheaper compared to the dollar now than at the start of the financial crisis in autumn 2008.
Current account surplus
She was challenged fiercely by Neptune’s European equity manager Rob Burnett. “The euro system is clearly competitive. Just look at its terms of trade. It’s posting a massive trading surplus with the rest of the world so it can clearly withstand the currency being at this level,” he said. “It’s true that a lower euro would lift the growth rate even higher, but I think the Eurozone can grow comfortably with the euro being at this level.”
Christian Suter of UBS Asset Management took a similar line. “The growing export of resources seen in the US will make the dollar appreciate again. This has taken the pressure to depreciate off the euro.”
Periphery bouncing back
It is often argued that the European southern periphery desperately needs a cheaper euro to become competitive again. Neptune’s Burnett made quick work of this argument, reminding the audience all peripheral Eurozone countries now have current account surpluses. “It is surprising how fast exports have been growing there. Exports of Spain and Portugal have been growing faster than Germany’s percentage-wise,” he said.
Fund selectors attending Expert Investor Luxembourg seem not too worried about the price level of the euro. They indeed have unbroken faith in European equities, with 50% of them planning to increase allocation further. Only emerging and frontier market equities exceed the asset class in popularity. On the other hand, delegates are cautious in their outlook towards US stocks, with six in ten keeping their allocation unchanged and the remainder split between bulls and bears.
Delegates attending the conference intend to achieve quite some of this exposure through alternative equity funds. Half of them said they plan to increase their allocation to alternative ucits funds in both fixed income and equity.
Click here to see a slideshow of photos taken at Expert Investor Luxembourg.
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