One of the more interesting statistics released this week was the inflow of $ 3 billion into pan-European stocks in the past 2 weeks. Ending a record run of 85 weeks of continuous outflows.
The above statistics on European equities were the second good news in terms of flows and improving investor perception in the past week. The first was the dramatic rise of the eurozone in the overweight / underweight rankings by global fund managers in the latest regular monthly allocation survey of their positions.
Although the UK was also modestly higher in the rankings, you could be forgiven for missing the new Eurozone rankings alongside emerging markets and the technological space.
This indicates some clear progress, since these two investment areas have been very popular lately. Thank you for the relaxation of the European Central Bank's September policy and global geopolitical events such as the slow improvement in the tone of world trade negotiations, which have largely benefited the euro area. Even the profit season for the third quarter is broadly workable, as a result of which the index has increased by more than 20% compared to the lows of 2019.
That said, there is still a lot of work to be done on the continent: you don't have Germany flirting with recession or multiple undecided Spanish elections in a handful of years in an impeccable background. But it should make you think about listed equities in the UK with significant exposure to the eurozone, because the next phase is playing on such improved perceptions … even before trying to figure out what the effects of the four-week period might be to be.
A large UK share that stands out is packaging company DS Smith (LON :), often overlooked by investors because of the boring name. However, the company is a leading producer of recycled corrugated cardboard in which many of our e-commerce purchases are packaged. It is also at the forefront of flexible packaging solutions for companies that move quickly in consumer goods (FMCG) and are trying to distinguish themselves.
These are two clear growth trends and – to more fully capitalize – the company has expanded in recent years to countries such as Spain and Romania (plus the United States) to facilitate offering these solutions to the generally very global FMCG community .
European revenues are currently the best generated in the UK, a gap that is expected to grow further. A sensibly covered dividend yield of 4.2% helps to seal the opportunity, along with a share price that begins to recover from the doldrums from earlier in the year.
The second name is the store Kingfisher (LON 🙂 , best known for its DIY brand B&Q in the UK, although it is the growth of the company's other domestic brand – Screwfix – that has dominated in recent years. This alone has made some investors enthusiastic who see an opportunity to split up the company, but I would also like to point out the size and influence of the company's French activities under the leadership of the Castorama brand (both current and former president) the directors of the company happen to be French). Current trade remains weak in France, but this means that sentiment levels are very low and the basis for future comparisons very simple.
Few people will be surprised to hear that the group's activities are ultimately correlated with confidence levels in the economy (and in particular in areas such as the real estate and construction markets), but the market cycle always precedes the economic. A dividend yield of 5.2% also helps.
And the third must Whitbread (LON :), about which I wrote a few weeks ago. Since this article was published, the shares have picked up a little, helped by some positive brokerage comments about the potential of Premier Inn's continued expansion into Germany, alongside other business initiatives. Although it is pleasing to see that the stock market recognizes this potential, I continue to see that more is coming.
Although it is always fascinating to look at regime shifts in the investment world, there is a reason why one of the most cited observations on the financial market is the dictum of Benjamin Graham that & # 39; enter the market the short term is a voting machine, but in the long term it is a weighing machine & # 39 ;, which fits nicely into the reality that most practical investors see. Anxiety, greed and related perception problems dominate the shorter term and – over a longer period – the reality with regard to profit, cash flow and general thematic value is much more important.
So yes, the influence of the eurozone on British stock market names can be more than just a scary discussion about Brexit!
