Europe today offers plenty of opportunities for bottom-up
\nstockpicking based on fundamental analysis, the key to investing success. But a thoughtful overlay of
\npolitical risk analysis is essential to complete the picture and reinforce investing conviction in these tense
\ntimes.<\/p>\n
For equity investors, the Brexit saga is probably the number one political headache today. Brexit is
\ncreating three major risks for companies. The first is trade disruption: firms that must move parts or
\nfinished goods across the UK border could be vulnerable to severe, though probably temporary,
\ndisruption in the event of a no-deal Brexit. Currency risk and the impact of pound on companies\u2019 earnings
\nis the second major concern, while the third one is to UK economic growth that could suffer from
\npersistent uncertainty.<\/p>\n
Some of the companies that are potentially most exposed to Brexit may not even be listed in the UK. There are two sides to the Brexit risk coin. Investors also need to consider what will happen if a In fact, we think many companies exposed to Brexit risks offer attractive return potential today. Take Still, investors need to be on the lookout for less well-publicized political risks that can have a real impact Political risk is not a reason to avoid European equities. Europe today offers plenty of opportunities for Political risk has been a feature in European markets for years. Lately, from Italy\u2019s fiscal squabbles toWhen researching stocks in the UK and across Europe, we ask whether a company is exposed to the
\nspecific risks that we\u2019ve identified. Then, we assess whether those risks are threatening its future cash
\nflows and, if so, to what extent they\u2019re adequately priced into the company\u2019s stock.<\/quote><\/p>\n
\nPeugeot of France, for example, both makes cars in the UK and sells more of its production to UK
\nconsumers than do its main European-listed rivals. So it\u2019s important that portfolio-level risk analysis takes
\naccount of Brexit impacts on non-UK companies; you can\u2019t judge a portfolio\u2019s exposure to Brexit just by
\nlooking at its weight in UK stocks.<\/p>\n
\nfavourable Brexit deal is reached\u2014or, conceivably, if the UK ends up not leaving the EU after all. These
\noutcomes would likely benefit UK stocks that have traded at a Brexit discount, as well as cyclical
\nEuropean companies that have suffered amid recent risk aversion. Investors in European stocks need to
\nensure that they are neither overexposed to Brexit downsides or underexposed to possible Brexit-related
\nmarket rallies.<\/p>\n
\nJohnson Matthey, for example, which makes materials for auto catalysts that are enjoying growing
\ndemand as emissions standards tighten. Or Marks & Spencer, the food, clothing and homeware retailer,
\nwhere new management is taking the measures needed to turn around performance, in our view. And
\noutside the UK, Peugeot is continuing to reduce costs both in its long-established units and the
\nbusinesses it acquired essentially for free from General Motors last year.
\nOf course, Brexit is only one political risk hanging over European markets today. From street protests in
\nFrance to governments in Hungary, Poland and elsewhere, the resurgence of populism in Europe is
\nchallenging EU norms. As the May European Parliamentary elections approach, investors may become
\nconcerned that further gains by antiestablishment parties could undermine the stability of the EU\u2019s
\ninstitutions.<\/p>\nIn our view these fears are overdone. The Italian government\u2019s recent decision to abide by eurozone
\nfiscal rules, following the earlier example of Greece, suggests that populist rhetoric in the opposition often
\ngives way to pragmatism in government: the overriding political imperative to remain in the euro retains
\nstrong popular support, as polls continue to show.<\/quote><\/p>\n
\non companies\u2019 earnings. In Spain, for example, recent tax changes introduced by the center-left coalition
\ngovernment have impacted some banks, and efforts to pass a budget this year will be complicated by the
\npolitics of Catalan separatism.<\/p>\n
\nbottom-up stockpicking based on fundamental analysis, the key to investing success. But a thoughtful
\noverlay of political risk analysis is essential to complete the picture and reinforce investing conviction in
\nthese tense times.<\/p>\n","protected":false},"excerpt":{"rendered":"
\nturmoil in the streets of France, it feels like the volume of political noise has risen. However, political risk is
\nnot a reason to avoid European equities. <\/p>\n","protected":false},"author":1,"featured_media":77719,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1809,1655,1657,1651,2087,2222],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/77721"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=77721"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/77721\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/77719"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=77721"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=77721"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=77721"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}