DUBAI May 29 Western European shares still hold
value for investors as lagging profit growth plays catch-up with
expectations, HSBC's head of European equities said on
Thursday, with minimal disruption expected from regional
Most European markets toiled behind the rebound seen in the
United States and other developed nations from the global
financial crisis as the euro zone suffered issues which
threatened to wreck the single currency project, undermining
economies and the companies operating within them.
Earnings at European firms are now recovering and it is this
profit growth which will drive market performance in the
near-term, Frederic Leguay told Reuters in an interview at the
bank's Dubai headquarters.
"The broad case for European equities is that there is a
30-40 percent earnings upside, if we continue the earnings
cycle, which makes the current valuations quite attractive,"
said Leguay, who oversees funds with 7 billion euros of assets
Domestic-focused stocks and companies whose fortunes were
closely tied to a country's economic performance were currently
showing the most value, Leguay said.
European banks also were outperforming the market and Leguay
is positive on the sector, given the improving profit growth and
return on equity (RoE), as well as the higher capital buffers
possessed by them, which was reducing costs and risks associated
with holding the shares.
Overall, Leguay said his funds were currently overweight on
French and Dutch stocks and underweight for shares in German and
"In Germany, we find value more difficult to find, possibly
because that country has been where most people have been
protecting their assets in the last few years," he said, adding
French firms have been considered bigger risks - and therefore
were cheaper - because of the country's economic performance.
The recent geopolitical tensions in the Ukraine and last
weekend's European elections - which saw widespread support for
Eurosceptic parties - wouldn't have much impact on European
Neither would next month's European Central Bank meeting as
an interest rate move has been priced into the market, unless
the amount of quantitative easing announced was outside current
expectations, Leguay added.
(Reporting by David French; Editing by Toby Chopra)