High profile fund manager Neil Woodford believes that ‘the Eurozone economy is not recovering, and any recovery is certainly not sustainable’.
Woodford made his name as manager of the Invesco Perpetual Income and High Income fund, before setting up his own firm, and new UK equity fund, this year. He is quite bearish on the prospects for the UK economy, but is much more worried about the Eurozone.
Woodford commented that the recent actions of the European Central Bank (ECB) which introduced negative interest rates, ‘suggest that all is not well in the Eurozone’. Eurozone stock markets rose in the wake of the ECB announcement, while bond yields also fell, both signs in Woodford’s view that the market ‘has become far too complacent about the challenges faced by the economic bloc’. He added, ‘I am not complacent’, assuring investors he would bear these challenges in mind when making investment decisions.
Woodford continued: ‘The market is in denial about the real plight of the Eurozone economy.’
The star fund manager remarked that ‘the economic fundamentals have improved only a little, in fact some economic indicators have markedly deteriorated’. He cited the recent onset of deflation in Portugal and Greece, and the sharp reduction in the rate of inflation in Ireland and Italy. In the first quarter of 2014, Eurozone GDP rose by 0.2 per cent, a fraction of that achieved in the UK, and several countries, notably Italy, the Netherlands and Portugal actually saw their economies shrink. In terms of how to invest in the Eurozone, Woodford commented that ‘not every stock in the region needs an economic recovery to happen in order to deliver returns for investors’.
Companies which do rely on a Eurozone recovery are already ‘well priced for its arrival and I am very wary of the risks involved in that crowded trade’, Woodford concluded.