“In the short term, we can see nothing that suggests the referendum result will rock European confidence and growth particularly,” Macklow-Smith told Bloomberg. “If in Europe the show stays on the road and we don’t get renewed concerns about the integrity of the euro zone, some drivers within the economy can come through and improve earnings — and there is more to go for.”
Looking ahead, Macklow-Smith argued that Europe’s recovery is still in its early stages and looks durable, pointing to the ongoing decline in the Eurozone’s unemployment rate, which is now at its lowest since 2011, and improvement in consumer confidence, which should buoy earnings growth. Meanwhile, in the U.K., he expects exporters to remain strong due to the pound trading at three-decade lows.
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Moreover, Macklow-Smith believed that stocks also look attractive, compared to cash and sovereign bonds, in the long-yield environment. The Euro Stoxx 50 Index has a 4.3% dividend yield, whereas average government debt comes with a 0.25% yield.
VGK has a 3.18% 12-month yield. EZU comes with a 2.87% 12-month yield. FEZ shows a 3.13% 12-month yield.
“It’s a struggle to recapture investor interest, and part of that is that earnings have been moribund for the past five or six years,” Macklow-Smith added. “But when you factor out the investment cycle, we are actually in buy territory. Yes, there are risks about investing in Europe, but at some point that is implicit in the valuation.”