Tightening credit conditions alter trajectory of global growth

Roger Guy and Guillaume Rambourg, co-managers of the Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund, remain cautiously optimistic about the outlook for European equities. Stocks in Europe have shown resilience following recent comments from the Group of Seven finance ministers and central bankers that the credit market turmoil, record oil prices and a housing slump will drain economic growth, note Roger and Guillaume.

“As a general rule, economic growth slows when credit conditions tighten. The global credit markets are tightening, and that is likely to alter the trajectory of overall global growth” say Roger and Guillaume. “We believe that more defensive and quality strategies will outperform from here”, according to both managers. They stress that the volatility in the markets signals a change in leadership. Some of the main themes driving the markets forward now will be large cap stocks, defensive sectors, stocks exposed to growth markets and high quality dividend strategies.

Commenting on the outlook for European equities, Roger and Guillaume believe that corporate profits will continue to rise and benefit from a strong global economy outside the US. European stock markets remain attractively valued relative to their peers and M& A will slowly come back to the fore. Both managers acknowledge that most European sectors remain too fragmented, in a global context. “We will be keeping a very close eye on the pace of the US and European slowdowns and will continue to focus on earnings. Our expectations for global GDP growth rates for 2008 are around 3.5-4%, revised down from the consensus view in June of 5% plus. If this rate holds, we believe that this will provide a very decent backdrop for European companies.”