NEW YORK -- Global stock investors reckon Europe is the best bet
for the rest of the year, figuring that economic integration and
rising earnings will help propel stocks after their best performance
in a decade during the first half.
With most Asian economies in a slump, and profit growth slowing
the United States, a speed up in Europe could hardly be better timed
"If I have to put my money somewhere, I would definitely put it
Europe," said Oscar Castro, manager of the Montgomery Global
Opportunity Fund, based in San Francisco. "The story behind the
European names is still very strong."
Castro, whose fund topped a Morningstar ranking of 235 U.S.-based
global stock funds for the first five months, said the reasons to be
bullish on Europe haven't changed from the first half of the year:
falling interest rates and the advent of a single European currency,
the euro, on Jan. 1. Lower rates boost profits by making it cheaper
for companies to raise capital while the euro is expected to help
earnings by creating a bigger, more efficient market.
Betting on robust profits -- Salomon Smith Barney expects European
companies' earnings to rise an average of 13 percent this year --
Castro has sunk almost two-thirds of his fund's money in Europe,
the largest amount invested in the United Kingdom.
"Interest rates have already fallen heaps and the economic
recovery in Europe is confirmed," said Pierre-Romain Gorot, a fund
manager at Jean-Pierre Pinatton in Paris, which manages $700 million
While European stocks are likely to reach new highs, investors
doubt the percentage gains in the second half will match those in
first: France's CAC 40 index has risen about 35 percent so far this
year. The index will probably only rise about another 10 percent to
15 percent in the second half, Gorot said.
European stocks will also benefit from investor concern about
prospects elsewhere. Slumping economies, plunging stocks and falling
currencies in Asia are driving many investors, especially the
Japanese, to seek higher returns and less risk elsewhere. At the
same time, concern that U.S. stocks are trading at historically high
premiums to earnings makes them leery of placing too big a bet on
further U.S. gains.
"Europe is the safest and the easiest play," said Daniel Jaworski,
chief investment officer of BPI Global Asset Management in Orlando,
Fla., which manages about $900 million in assets. "The fundamentals
are good and the valuations are still reasonable."
The glow's rubbing off on the emerging markets of Europe as well.
Greece, Poland and the Czech Republic, whose stock-market indexes
posted some of the world's best gains so far this year, may have
further to climb, investors said. …