Investors should not be put off by the current eurozone crisis, asset manager believes

News - Banking

Written by Ray Clancy

Thursday, 25 November 2010 11:12

The current eurozone crisis is taking the heat off the UK market at present and should not deter investors looking at the stock market, according to experts.

Defaults on debt in some European countries, particularly Portugal, look unavoidable, many commentators believe.

But the risks in Europe and the uncertain background for the UK economy should not put off investors, says Colin McLean of SVM Asset Management.

‘It may not by itself undermine the Euro or the European Union, although we may need to re-learn how to spell Drachma. An exit of a single nation out of the eurozone might be possible without sinking the euro,’ he said.

‘The risks in Europe and the uncertain background for the UK economy should not deter investors. The stock market still offers opportunities in certain areas, for example UK companies with overseas exposure, and the ability to raise profit margins from current levels,’ he explained.

‘Many industrial companies are delivering rising profits and export sales of UK companies are being supported by demand from Asia. There is good value in the dividend yields offered by many shares, especially when other assets and savings have very low returns,’ he added.

He points out that British industrial companies such as IMI, Invensys and Croda are still under-rated relative to international competitors and could attract bids. A number of oil and gas groups are enjoying success with North Sea drilling, and could also be attractive takeover targets.

‘Risks in the stock market are more in businesses exposed to the UK economy, such as consumer sectors and banks. Some UK and European banks will be required to raise further capital, and eurozone sovereign debt is a concern for the sector,’ he said.

‘While global growth is likely to slow over the next year that should create quite a strong background for resources such as oil, copper and precious metals in particular. Further support will be provided by weakening of the US Dollar resulting from further quantitative easing, but investors should not become complacent, even while shares are rising. The lesson of QE is that it will not be easily stopped, and it should encourage investors to emphasise real inflation-proofed assets within their portfolios.’