WITH a gap in valuations between US stocks and European stocks, Europe is a "happy hunting ground" for value investors, said Nick Sheridan, who manages over 800 million euros (S$1.23 billion) at Henderson Global Investors.
He told The Business Times in an interview last week that on an inflation-adjusted longer-term price-earnings measure, Europe and Japan are the two cheapest markets in the developed world now.
In Europe, there are a number of companies with good business models, high recurring revenue lines and margins, and barriers to entry to their industries, he said. Countries that he is overweight relative to benchmarks are Italy and Spain. But in France, he finds that he is holding less because companies there face high social and employment costs.
Mr Sheridan is underweight financials, telcos and utilities, and holds stocks of some healthcare and legal publishing companies, pharmaceutical and healthcare companies, and auto suppliers.
Institutional investors have pulled some money out of Europe in 2014 due to a combination of the Ukraine conflict, sanctions on Russia, and the Ebola health crisis in Africa.
The credit cycle could return this year as oil prices recover, people adjust to the effect of the Russian sanctions, and demand for credit is boosted by central bank support, Mr Sheridan said.
The European Central Bank is expected to announce a quantitative easing package later this week to provide liquidity to boost an economy caught up in deflation.