Market optimism to boost small caps – Barings manager

Nick Williams, manager of the Baring Europe Select Trust, is among those suggesting that small cap investors are set to benefit from a return in confidence and optimism in the Eurozone.

The new optimism follows a period of exaggerated bearishness at the end of last year, but together with a bounce in M&A activity should create a favourable environment for small and mid-cap stocks to perform well from current low valuations.

However, risk management at the stock level is crucial for success.

Williams (pictured) said: “European equity markets have been boosted in the first few weeks of 2012 by improving economic data releases and the availability of low-cost loans from the European Central Bank to the banking sector. Having been oversold last year, European stocks in general are seeing an improved trend in earnings revisions, even ahead of what we are seeing in the rest of the world.

“Small and mid caps in the Eurozone were hit particularly hard last year by negative sentiment in the markets but year to date have outperformed large caps. This is largely due to the access that small cap indices provide to interesting, high growth stocks within the industrials, IT and consumer discretionary sectors in particular, especially within the capital goods sub-sector. On a country level, small and mid-cap indices have considerably outperformed large caps in Italy and France so far this year, both countries that we have favoured in our portfolio.”

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