FUND managers across the continent expect European equities to outperform UK shares in the next 12 months, one of the market’s most respected studies will predict today.
Mercer Investment Consulting’s annual survey of global fund managers will show that European managers, who between them manage US dollars 6.3 trillion (GBP 3.4 trillion) worth of assets, believe European equities will rise by 10 per cent, compared with 8 per cent in the UK in 2004.
The Netherlands and Germany are expected to turn in the best performances, alongside Japan, of any country in the coming 12 months.
After the strong recovery of the last nine months, fund managers expect stock markets to bed down into a more subdued period of steady growth. Typically they will say they expect average annual returns of between 5 and 10 per cent until 2007. However, there is little optimism for the prospects for bond returns.
European managers Mercer believes returns will be about 3 per cent for the next three years.
Vodafone and Aventis turned up most frequently on top five lists among the 55 institutional fund managers surveyed.
Industrial and financial sectors being the most hotly tipped to produce strong returns this year, in part on the back of an upturn in mergers and acquisitions (M&A).
Some 68 per cent of managers expect to see an increase in M&A activity in the UK investment arena in 2004, while 74 per cent think the same sector faces further consolidation across Europe.
Andrew Kirton, worldwide partner and UK head of Mercer Investment Consulting, said: “Though stock markets are predicted to continue to recover this year, the operating environment for fund managers will remain tough.
“Low inflation, increased demand for alternative and absolute return assets, a testing regulatory environment and greater emphasis on shareholder activism will present challenges. But 2004 is not without opportunity for the specialist players.”
In particular, hedge fund, private equity and managers specialising in tactical asset allocation are expected to do well in the coming year as pension funds in particular look to increase their exposure to alternative asset classes in an effort to bolster performance.
There will be cause for relief in boardrooms around the UK as Mercer will say that one-third of managers thought there was further need to tighten UK corporate governance laws, compared with the two- thirds who thought laws needed to be toughened up on the continent.
