Comgest’s Laurent Dobler discusses the concept of “quality growth” as a success factor in investment

The uncertain European market environment is persisting into 2012. Meagre growth and high volatility are the ‘new norm’.

Nevertheless, companies are now maintaining that they are positioned to grow more strongly than their industries and markets.

Developments during the first quarter of 2012 suggest a recovery in the European markets. Monetary policy has served to relax both the situation in the financial markets and the sovereign debt crisis, with both the European Central Bank and Bank of England acting in the first quarter to support the European banking system, by injecting large amounts of liquidity into the markets.

Greece moved forward in adopting a new austerity budget, clearing the way for the second EU aid package to be released, and for further debt restructuring measures to be put into motion.

Economic stability has been maintained in France and Germany, despite predictions to the contrary, while Italy’s economy has continued its decline.

In a monetary and economic environment which has of late become somewhat more stable, investors have been showing a preference for cyclical stocks.

Banks, insurance companies, auto manufacturers and chemical producers have been the top performers in the European equity index, despite continued declines in forecast earnings.

With the risks relating to the euro and to economic stability settling back down, the European stock market was able to post a gain of 4.1% in February.

The higher valuation being attached to the European market is entirely a function of rising risk appetite, corresponding now to a higher P/E ratio on a forward 12-month basis of between 11 and 12.

The economic signals from Europe, however, remain mixed. Germany’s Ifo Business Climate Index improved slightly, and French measures of consumer and business confidence remained stable, albeit at persistently subdued levels.


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