Current European climate calls for caution

"Eurozone inflation rose to record levels in June and shows no signs of abating. We believe this will be one of the biggest headwinds facing European companies over the following months," say Roger Guy and Guillaume Rambourg, managers of the Gartmore European Selected Opportunities Fund.

"The prospect of stagflation - low growth coupled with high inflation, is an added concern. In our opinion, inflation risks remain to the upside in spite of the European Central Bank's recent interest rate hike. Commodity prices remain strong, but even more worrisome, for European company margins, is the wage growth induced inflationary pressures."

Rising inflation, consumer recession and real estate price deflation do not amount to an ideal cocktail for the banking sector. As a result, the capital raising exercise, initially greeted by some with genuine enthusiasm, is proving rather more painful than previously anticipated. "We remain firmly of the view that these troubled and volatile times call for caution," say Roger and Guillaume.