Our recent trip to Munich, Germany suggests there is some room for optimism for the largest economy in Europe. 55% of surveyed companies said current trading conditions are positive versus 20% who said negative. This is in contrast to the more widely held view that Europe has fallen to pieces. The Ukraine situation is not helpful but its impact does not seem to be, at this time, as negative as it is portrayed by the media. German and Austrian firms really do seem to be innovation leaders as we highlight some examples in our observations. (VIEW LINK)
Over the past few months we have been winding back our overweight Europe call as data was pointing to a slowdown. At this point, we are underweight Europe against our benchmark but this is more a trading decision as the markets look poised to fall further in the immediate term i.e. we are building our cash position. We are keening awaiting September data because we want to get a read of the economy when it is not on holidays. Recall that our German survey was taken very late in September and is the source of our optimism that conditions in Europe could have stabilised.
So Nathan with 35% of your portfolio exposed to Europe have you made any changes in light of the recent headlines/reports on slowing growth (specifically in Germany). It sounds like at the company level things are more positive than negative, however, it also seems like a small change could reverse this situation quite easily.