Yes to Europe, but targeted

21 May 2014

Sentiment in the Old World is more positive than a few months ago, but the marginal Euros invested in these markets are destined for specific investment stories rather than generic reallocations by US investors in Europe after years of underweighting. At the same time, there continues to be some caution surrounding the implications that the credit bubble on emerging markets has had on the accounts of many European companies with exposure in the countries affected, although reforms underway and the improvement of business conditions in Europe are offsetting the negative effect of emerging markets on corporate profitability. One tangible example is Zara – which is bringing production back to Barcelona from China – and car manufacturing, which is now more cost effective in Spain than in Brazil.

An important trade on the short side involves disruptive technology for traditional food retailers, which will likely continue to be penalized by the impressive growth of online sales.