Oct 2007 - Issue 70 Previous Issues

The Global Investor is a monthly newsletter that covers global investment opportunities and insurance for the expatriate community. This monthly newsletter's goal is to inform the reader of what can and cannot be done in the investment arena when living and working in a foreign country. Whether it's personal pension plans or disability insurance to protect your income - Global Investments has the expertise to handle all the expatriate investors' needs.

Weathering the global turbulence

European ex UK funds that have that have concentrated their investments on mid - and small-caps and that have taken advantage of the EU's eastwards growth have performed well - but how is the is the sector likely to fare in the current volatile economic atmosphere?

European markets have been undoubtedly buoyant over the past few years, benefiting form low interest rates attractive company valuations and strong earning - factors that have supported share prices across the globe.

Europe has fared better than both the US and Japanese markets over one and three years, but has lagged behind Asia Pacific and omerging markets.

Funds that have performed particularly well include those investing in the mid - and small-cap universe, portfolios playing on

the convergence of Europe - as countries located in the centre and east of the continent join the EU, resulting in increased competition and trade, while a handful of managers have done well on a more regional or market specific basis.

Crunch effect
more recently, interest rates haev been on the rise and valuations have moved up, although they remain fair, according to commentators. A key question is whether earnings can continue their ascent, particularly in light of

the credit crunch, and uncertainty over how it will play out in the medium to long term.

milk Lenhoff, chief strategist and head of research for Brewin Dolphin Securities, believes there will undoubtedly be a slowdown as the cost and ease with which private equity can borrow is reduced, restricting a significant market driver in the form of M&A and leveraged buyouts. But overall, he think the outlook rmains positive.

"If the forecast earnings come through then the current valuations look good, particularly because they have fallen again just recently," he says.

"There is undoubtedly risk attached to any earnings forecast, especially because the credit crunch has made borrowing harder and some sectors of the market will not be able to access funds so easily."

The US Federal Reserve's cut in interest rates is a positive sign for Europe, according to Lenhoff, who believes decision markers in the European Central bank

ending a spell of rate hikes and giving some cheer for equity markets.

Anddrew Yeadon, head of multi-manager for Schroder Investment Management, said: "The global economy is clearly slowing and that is likely to impact on corporate earnings growth.It may be that we see some analyst downgrades in some sectors. "

"that said, our general view is that, after a slow-down in the second half of 2007, growth will accelerate again as we move through 2008. Stock market valuationa are attractive. Recent weakness has not been so much about signs of weakness amongst companies but more about certain types of investors over-leveraging themselves and having to rein in risk."

"We take comfort form seeing so many directors recently buying shares in their own firms, as well as the fact that central banks have a lot of leeway to ease policy if needed."

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