US cash injection shows confidence in Europe

Big US funds invested $65 bn in European equity in the first half of 2013, according to research by the Goldman Sachs European strategy team, compiled from US Treasury data.

This figure is the highest for 36 years, according to the Financial Times, which reported the findings, and highlights growing confidence in the region’s ability to emerge from the grip of its sovereign debt crisis,

‘The economic story makes Europe a good bet,’ Eddie Perkins, chief investment officer of international equity at Goldman Sachs Asset Management, told the paper. ‘We expect European equities to keep rising as the continent recovers.’

Risks remain, however, with any disruption to the eurozone’s fragile recovery, concerns over instability in emerging markets and possible US military action against Syria all cited as having the potential to derail Europe’s growth.

But despite the risks, Europe’s cheap stocks remain attractive. According to HSBC, European stocks remain 15 percent undervalued compared with the long-term average, reports the FT – even after the mid-2012 boost triggered by European Central Bank president Mario Draghi’s pledge to do ‘whatever it takes’ to save the euro.

Sectors that have underperformed in recent years, which are now favored by Goldman Sachs and HSBC, include financials, telecoms and utilities. European banking stocks ‘are back in vogue’ as well, according to the FT.

‘There are still a lot of pessimists out there, but the cheapness of these stocks makes them attractive,’ Robert Parkes, equity strategist at HSBC, told the paper. ‘The risks are outweighed by the positives and I think European stocks can definitely move higher.’