Guessing over Europe; New Investors May Be Better off in the UK

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Byline: JANE WALLACE

TWO years ago Europe was widely tipped as the place to invest, but now most advisers find it difficult to summon up enthusiasm.

Over the past 12 months, the average Europe fund has lost about a fifth of its value, figures from analysts Micropal show. In that time, no European large companies fund has made money.

However, if you had invested three years ago you would have [pound]1,054 on an investment of [pound]1,000, or [pound]1,795 if you had gone in five years ago.

So what has gone wrong? Partly, the downturn in world stock markets, sparked by America's economic slowdown and the bursting of the technology bubble.

Funds which were heavily invested in tech and telecoms shares, most notably Invesco Perpetual European Growth, have made the biggest losses.

Then there is the single European currency, which has been on a downward trend against the pound and the U.S. dollar since it was launched in 1999.

Until the General Election it had lost about 5 pc against the pound, says Raj Shant, fund manager at Credit Suisse. 'Even if you were investing in the best European companies, your returns are being erased,' he says But could Labour's election victory mark a march towards the euro which would change the currency equation? Estimating the result of such changes can only be guesswork, says Mark Dampier of independent financial adviser (IFA) Hargreaves Lansdown, but it will be good for European shares.

He says: 'Everyone will have to move more money out of the UK into European assets. Demand will push up prices in Europe and the UK will fall back.' Potential cuts in European interest rates - so far slow in coming, particularly with Germany facing recession - and events in America are more important in the short term, as are political moves.

In fact it is the politicians who are the bad guys, not the central bank, says Alex Darwall, fund manager at Jupiter. They are reluctant to make the drastic reforms to tax and labour laws necessary to bring Europe up to speed with streamlined Britain and America. …