Will Greece and Spain replace the UK as Europe’s fastest growers?

Countries on the eurozone periphery such as Greece and Spain have endured years of weakness but there have been recent signs of strength in these economies.


Greece has battled recession for six years although hopes are increasing that the country will return to growth in 2014. The latest official data shows the Greek economy contracted by an annualised 2.6 per cent in fourth quarter of 2013, down from a 3 per cent drop in the previous three-month period.

Meanwhile, the Spanish economy grew by 0.3 per cent in the final three months of 2013, up from 0.1 per cent in the prior quarter and posting the biggest rise since the start of 2008.

Henderson European Selected Opportunities fund manager John Bennett says: “As far as Europe goes our own offered-up surprise for the year ahead is our contention that long suffering Spain and Greece will rival the UK in vying for the Old Continent’s fastest growers.
“Now that would require some rewritten narratives.”

Bennett has 3.1 per cent of his £1.6bn fund allocated to Spanish equities.
Argonaut chief investment officer Barry Norris argues that Greece is likely to emerge from recession soon and highlights a number of positives for the economy.

Greece’s current and fiscal accounts are now in surplus while its government debt has been restructured. Meanwhile, foreign direct investment in the country has started to pick up as investors approach the country with fresh eyes.

Norris, who says a recovery in the country would be Europe’s most important economic and political development in 2014, added Greek banks to his Argonaut European Alpha and Argonaut European Absolute Return funds last year.

“The best time to invest in a country is often when its economy is emerging from recession and all of the bad news is in the rearview mirror,” the manager says.

“We have highlighted the European banking sector as the most obvious stock market beneficiary on many occasions, and it should come as no surprise that the Greek banks are the most geared equity investments to the ‘Grecovery’.”

Threadneedle European equities manager Dan Ison says Spain is an example of “the poster children of the eurozone reforms” as it can now finance itself in open market, has become more competitive and is benefitting from falling unemployment.

“Generally speaking, those economies that have enacted the most dramatic economic reforms have delivered better equity market performance. Despite significant external pessimism about Europe’s ability for self-help, it has begun to work,” he says.

“Economies which instituted the bolder and tougher reforms are now looking towards a significant pick-up in growth compared to 2013. We expect this top-line growth to drive improved earnings in 2014, helping them to catch up with other developed markets.”

JP Morgan Asset Management chief market strategist for Europe and UK Stephanie Flanders agrees that “good news” can be seen in the crisis-hit economies of Greece, Spain and Ireland.
But she adds that it remains “early days” for the eurozone recovery as business lending continues to fall while unemployment is stubbornly high.

“I’m not expecting to see a strong bounce-back in growth in the eurozone in 2014,” Flanders says.
“In fact, I expect that the European Central Bank will have to take more steps to confront the risk of deflation. But the news from the Continent is a lot more encouraging than it was.”

http://www.fundweb.co.uk/europe/will-greece-and-spain-replace-the-uk-as-europes-fastest-growers/2006967.article