Money to flood into European equity funds
Europeans are to be the dominant global investors in the next five years, according to HSBC head of European equities Chris Rice.
"The Europeans have been traditionally bond and cash investors, but they are now becoming equity investors," he says.
The implications of this potential boom in European equities for Australian investors will be strong returns in this sector.
To latch onto this growth, HSBC has launched three new retail and wholesale international equity funds, one of which is a European product. The other two funds are an American and Japanese equities products.
Based on past performance of HSBC's Pan-European fund, one-year returns are 13.6 per cent and five-year returns 30.2 per cent. This compares with the fund manager's Japanese fund which has a one-year return of -32.1 per cent and five-year performance of 3.2 per cent.
Rice says Europeans save more than the US and that money has to be channelled somewhere.
"Europeans save $450 billion a year, yet the Americans save virtually nothing," he says.
"Most of this is going to the banks; Europe has 40 per cent of the world's bank deposits."
However, as many countries move their pension schemes into the private sector, the individual will be responsible for the investment strategy and that will also lead to greater equity investment.
"We believe that up to $US1 trillion could be invested into European equities in the next five years," Rice says.
Investors will also be looking at companies that are taking part in the financial growth of Europe. He cited a German financial planning form that targets the graduate market. The principle is that if the company secures them as a young client, they mature into high net worth individuals later in life. It has a client retention arte of 98 per cent and a market capitalisation of $30 billion.
Rice says these are the type of companies investors will be seeking in the future for their potential high growth.
The strength of European economies and its companies means HSBC is predicting 2.5 per cent GDP growth for the region this year. This compares to 0.5 per cent for Japan and that figure is still being revised down.
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