Euro opportunities despite slowdown

Although the economic slowdown in Europe will continue to erode corporate earnings for some time, the current conditions also create opportunities to initiate positions or add exposure to companies based on shares price weakness, claims Peter Jarvis, manager of the Foreign & Colonial Eurotrust.

"The already high Eurozone inflation has risen further, prompting the ECB to raise interest rates by 0.25% to 4.25%, "Jarvis commented.

"After this move we expect the ECB to hold tight while it monitors forecasted slower activity and the risks of second round effects from global inflation developments."

Current high inflation mixed with the credit and property crisis suggests the possibility of stagflation and negative real rates globally. Jarvis commented: "While we believe these are legitimate concerns, at current levels the market has adjusted significantly lower and offers sufficient valuation support." Jarvis added that the industrialisation of emerging markets should also continue to cushion a developed economy slowdown.

In the trust's interim management statement for Q2, Jarvis explains he has been adding exposure to companies that can better stand the global headwinds. "We like companies that exhibit pricing power to offset rising input costs and generate cash earnings, irrespective of the economic cycle," he said.

Within financials, Jarvis has further reduced the trust's exposure to banks, selling Bank of Ireland. On the other hand, he added to the portfolio's insurance weighting, buying Zurich and Allianz. He also added to German listed Hypo Real Estate.

The European Oil & Gas sector is another area where Jarvis identifies attractive investment opportunities. During Q2, Jarvis initiated positions in Petrolia Drilling and Galp. The latter is Portugal's leading integrated oil and natural gas group, with a growing presence in Spain and Brazil.