Investing in Europe has obviously become increasingly risky as the Eurozone sovereign debt crisis swings wildly from hope to panic mode given the day to day headlines. But there’s way to gain exposure to European economies without the risk says Goldman Sachs. Their European strategy desk offers 5 reasons to prefer UK market exposure over the EMU:
“In addition to a low beta the UK market has several other things in its favour:
1) We forecast stronger growth for the UK economy, 0.7% in 2012 versus -0.8% in the Eurozone for 2012. We also expect inflation, that perennial UK problem, to gently recede through 2012 as the impact of the VAT hike falls out and energy
price inflation falls (even if the level of energy prices does not).
2) The Bank of England is more activist than the ECB. The BoE has already embarked on a second round of QE and our economists expect more in 2012.
3) The equity market is very international in exposure. 75% of FTSE 100 sales are outside of the UK. Obviously some of this will be to continental Europe but the majority is to either the US or EM.
4) The sector split of the UK market we also find attractive with its very large weights in commodity areas especially oil and basic resources, respectively 21% and 12% of market cap, and relatively low weights in chemicals, construction, autos and industrials.
5) Being out of the Eurozone, the UK has avoided the large commitments to peripheral eurozone countries, and so far (with the emphasis on so far) the UK bond market has avoided contagion. Indeed UK bond yields, and hence financing costs for the UK government, remain at historical lows.”
Source: Goldman Sachs
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.