Bloomberg News

Europe Stocks May Look Cheap on Crisis Deal, BlackRock Says

October 20, 2011

(Updates with today’s trading in third paragraph.)

Oct. 20 (Bloomberg) -- European policy makers must deliver on plans to resolve the debt crisis before the region’s equities become attractive investments, according to BlackRock Inc., the world’s biggest money manager.

“What we need to see is a resolution to the sovereign debt crisis in Europe and some details on how politicians plan to launch the bank rescue plan before we can judge if the market offers a meaningful buying opportunity,” Zehrid Osmani, the Edinburgh-based co-manager of BlackRock’s BGF European Fund, which has about $3 billion under management, said in a phone interview. “We do see pockets of value, but valuation alone is not going to stabilize the market.”

The benchmark Stoxx Europe 600 Index has advanced for the past three weeks amid optimism euro-area policy makers will contain the region’s debt crisis. The gauge dropped 0.3 percent to 236.05 at 11:47 a.m. in London today. The index is trading at 10.1 times the estimated earnings of its companies, compared with the two-year low of 9.1 reached on Sept. 23, according to data compiled by Bloomberg.

Group of 20 finance ministers and central bank governors concluded talks last weekend in Paris by endorsing parts of an emerging European plan to avoid a Greek default, bolster banks and curb contagion. The proposals, which have yet to be made public, include writing down Greek bonds by as much as 50 percent, establishing a backstop for banks and boosting the strength of the 440 billion-euro ($607 billion) temporary rescue fund known as the European Financial Stability Facility, people familiar with the matter said.

Earnings Season

Sixty percent of the 28 companies in the Stoxx 600 to have released earnings since Oct. 11 have reported profit that missed analyst estimates, data compiled by Bloomberg show. On Oct. 14, Infineon Technologies AG, Europe’s second-largest chipmaker, warned profitability and sales will decline this quarter as the debt crisis makes clients more reluctant to spend.

“It’s going to be an important reporting season,” Osmani said. “We will start seeing signs of the slowdown in some of the more cyclically exposed sectors, especially sectors higher up in the food-chain such as materials in particular and some industrials.”

European companies have yet to cut profit forecasts enough to match the slower economic growth BlackRock expects in 2011 and 2012, Osmani said. Even so, earnings should increase by a “mid-single digit” percentage as demand from emerging markets supports income, he said.

Royal Dutch Shell Plc, Europe’s largest oil company, is the biggest holding in Osmani’s portfolio, making up 4 percent of the BGF European Fund. Other investments include Rio Tinto Group, the world’s second-biggest mining company, and Bayer AG, Germany’s largest drugmaker, which make up 3.4 percent and 2.7 percent of the fund, respectively.

--Editors: Andrew Rummer, Will Hadfield

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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