Many investors are scared off by Europe, given potential risks from populist uprisings and questions about the future of the European Union (EU). But Brian Singer, head of the William Blair Dynamic Allocation Strategies team, says now is the time to gain exposure to European banks in a recent TV interview with Barron’s Senior Editor Jack Hough.
Singer noted that European banks have been significantly battered in the global financial crisis and again in the 2011-2012 European debt crisis, which has created a difficult environment for investors to step into this market and sector. Currently, however, European banks are priced well below fundamental value, Singer told Barron’s. In fact, he believes it’s the most fundamentally attractive sector in the Eurozone.
“Also, investors are very fearful of any downside risk, and that’s the sector where they’ve experienced [downside risk] more recently, which gives them another reason to avoid it,” Singer said in the interview.
At the same time, Singer highlighted that the regulatory environment for banks is turning more favorable as the regulators recognize the need to help strengthen the banks, especially as key institutions, such as the European Monetary Union, grow concerned about another EU member might leave.
Overall, Singer told Barron’s that he believes Europe is more attractive than the U.S. equity market. And, while banks is his most favorite sector, he has major concerns about Italian banks, many of which aren’t solvent. Spain remains his most favorite country in Europe—again, because it’s the most fundamentally attractive (the greatest discrepancy between price and fundamental value).
“[Spain] has made tremendous progress since 2011 regarding important reforms to its labor flexibility,” Singer said in the Barron’s interview. “They still have a long way to go, but they’ve done a lot more than I think the market has appreciated.”
Singer also highlighted his positive outlook on European financials and Spain in another recent interview on CNBC’s “Closing Bell” program with anchors Bill Griffeth and Kelly Evans. In that CNBC interview, Singer said that central banks are starting to normalize their balance sheets, which allows prices to revert back to fundamental values.
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