It's hard to know whether to laugh or feel insulted when a fund manager's key advice to a group of sophisticated investors is "avoid investing in Europe's periphery". Is that really what they earn their bonus for? Admittedly, you wouldn't want them to suggest the contrary, but would we really think the periphery is a good idea anyway.
Enough of my rant. My point is this, Europe is a vast expanse of land and countries. As a rather more astute manager put it; South East England has helped bankroll the rest of this country for as long as anyone can remember on the back of the City, where's the difference with Western Europe bailing out it's weaker outposts? Political Europe and investment Europe are two wildly different entities. Political will and the general economic consequences of the demise of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) hit the headlines daily, but what is less well known is that core Europe is a manufacturing powerhouse.
Switzerland, Germany, Austria, Finland and Sweden count industry (excluding construction) as between 17.2% - 20% of their GDP. The US and UK lag at 11.1%.
Then consider that from a current base of less than 100 million middle class consumers in China and next to none in India, there are predicted to be over 1,400 million middle class consumers in both countries by 2045, with India overtaking China.
This is relevant to Europe, because as a manufacturing powerhouse, core Europe can supply the developing nations. Maybe decreasingly in terms of basic exports, as the developing world is importing less staple goods from outside, but increasingly in terms of luxury goods and brand names. Chinese and Indian middle classes are no different to the West in that just because a local name might be cheaper, the kudos of owning a foreign brand name is more important. Swiss watches or Luis Vuitton are prime examples of stocks which offer great value for investors even if the thought of spending over £1 million on a watch seems ludicrous to us.
Europe isn't all about the developing world though, opportunities abound in less exciting sectors such as cable operators and tyre manufacturers. Speaking of the automobile sector, when was the last time you saw a BMW or Mercedes manufactured outside Germany.
Core Europe has learned to protect itself from problems in the periphery by developing indispensable industries and intellect. It might be hard for those of us in the UK to relate to this given the somewhat parlous state of our manufacturing sector, but Europe is not a disaster, to the contrary it homes some of the best growth potential in the world today.
Tags: Europe, Eurozone