While the managers of the Dublin-domiciled UCITS SWMC European and SWMC Small Cap European funds – run by Mitchell and Carter respectively – are optimistic on the European domestic recovery, for names more heavily reliant on Chinese growth, they foresee continued pressure.
The pair sold out of anything dependent on China in late 2012 and early 2013, which they believe seemed contrarian at the time.Mitchell said many quality China-exposed stocks remain overpriced and believes the derating could last another three to five years.
“The likes of Diageo or L’Oréal are still way too expensive. Analysts still have not understood how fast the Chinese economy is slowing down,” he said.
Carter added: “For small-cap companies, a common theme for the last three years is that companies are finding they cannot do business in China. Sure, this would have held them back on the way up, but it has really protected these companies on the way down amid the recent volatility.”
Mitchell said the second quarter numbers in Europe were showing real momentum, with many reports beating consensus, adding the major surprise has been the banking sector.“
BNP Paribas, Intesa Sanpaolo and Commerzbank each generated numbers well in excess of expectations,” he said.
