European equities continue to offer good value

European equities continue to offer good value for investors, says Dave Fishwick, Head of M&G's Multi Asset management team.

The real yields available from shares listed in Europe's developed markets are well above their historical averages. Pan-European equity markets appear particularly attractive after recent falls triggered by investor concerns about the future of the Euro.

Real yields - the prospective annual return after inflation - on the region's equities are as high as 12% compared with an average of around 6% over the past couple of decades. "Many equity markets continue to offer high levels of compensation for bearing risk over the medium term," says Dave Fishwick.

He adds that mixed performance from equity markets over the first half of the year has been accompanied by continued strong corporate earnings: "This adds to the attractiveness of equities. It is easy to lose sight of the facts regarding companies' delivery of earnings. Such dry and incremental newsflow has far less appeal than the excitement of shocking news stories."

By contrast, cash and short-dated bonds look extremely unattractive. Typically, cash is offering returns below the rate of inflation, while short-dated bonds in developed markets are on real yields substantially below their long-term averages.  Long-dated bonds, while still relatively attractive, offer less value than at the beginning of the second quarter.

Currencies

Dave continues to believe the Euro looks over-valued compared with the high-yielding currencies in emerging and Asian markets, especially given the fundamental challenges to the single-currency region. The multi-asset team prefers the Korean won, Malaysian ringgit, Turkish lira and Mexican peso over the medium term.