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Build up euro equity as new emerging market: Pioneer
November 26, 2012 / 2:41 PM / 5 years ago

Build up euro equity as new emerging market: Pioneer

LONDON (Reuters) - Euro zone equities will be the star performers of 2013 and investors should seize all opportunities to build up this portfolio, Pioneer Investments’ Chief Investment Officer said on Monday.

Giordano Lombardo, the Group CIO of Pioneer Investments, attends the Reuters Global Investment Outlook 2013 Summit in London November 26, 2012. REUTERS/Benjamin Beavan

Branding European equities as “The Next Emerging Markets”, Pioneer Group CIO Giordano Lombardo told the Reuters Global Investment Outlook Summit for 2013 that euro zone equities were undervalued, under owned and would benefit from a stabilization of both the underlying euro zone economy and the wider investment climate.

Refuting any idea of the “death of equities”, Lombardo said asset managers looking at the continuing normalization of global markets had yet to return en masse to equities and now was the time to make that shift for the next decade.

Even in the face of the considerable political and policy risks in the 17-nation euro zone, the case for building an overweight position in euro equities was compelling, he said.

“Our main out-of-consensus call for 2013 is that we will take all the market opportunities to add to our euro zone equity position,” said Lombardo, CIO of Milan-based Pioneer, which has more than $200 billion worth of assets under management.

“The economy is still in bad shape but we see it at a turning point and the gradual improvement will see some return to growth in the second half of 2013,” he said at the summit, held at the Reuters office in London.

“Now is the moment to take strategic positions,” Lombardo said, adding that fundamental analysis pointed to double-digit gains next year, in excess of the U.S. or even emerging markets.

The CIO of Pioneer, the asset management arm of Italian bank Unicredit (CRDI.MI), said that even though euro zone equities .STOXX50E had gained less than 10 percent this year they were still among the most under owned stocks in global portfolios.

“It’s the right time to be constructive when everything seems terrible - just like U.S. equities in the early 1990s or emerging equities after the Asia crisis in the late 1990s.”


Euro equity valuations were attractive and the historical relationship between cyclically adjusted price-earnings ratios and total returns suggested stocks could record up to a decade of double-digit gains, he said.

What’s more, the European Central Bank’s extraordinary monetary policy commitments this year had “cut the tail risk” of a euro zone collapse, while unit labor cost reductions on the periphery had improved the relative competitiveness of euro economies and imbalances within the zone were improving.

“If this convergence path is confirmed, the euro zone can become the emerging market story of the next decade,” he said, adding that the ‘fiscal drag’ from austerity programs next year would be less than two thirds that of 2012.

    By sector, Pioneer favors euro financial stocks - including French banks Societe Generale (SOGN.PA) and BNP Paribas (BNPP.PA) - as well as construction and infrastructure shares.

    Elsewhere, Lombardo was positive on global equities at large, seeing single-digit gains in the United States as the “fiscal cliff” problem was resolved, and double-digit gains in the underperforming but now cheap Shanghai market as China’s economy bottoms out in the current quarter.

    Other emerging markets worth watching were Turkey and Mexico, he said.

    Lombardo said there may be some value left in corporate credit, especially emerging market corporates, even if the biggest gains in a world of near-zero official interest rates in the West were clearly behind.

    However, safe havens such as U.S. Treasuries, British gilts or German bunds offer little or no opportunities at such expensive levels.

    “There is no value in the safe havens,” he said.

    Follow Reuters Summits on Twitter @Reuters_Summits

    Editing by Susan Fenton

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