GOLDMAN: 5 REASONS TO PREFER U.K. INVESTMENT EXPOSURE OVER E.M.U. EXPOSURE
Investing in Europe has obviously become increasingly risky as the Eurozone sovereign debt crisis swings wildly from hope to panic mode given the day to day headlines. But there’s way to gain exposure to European economies without the risk says Goldman Sachs. Their European strategy desk offers 5 reasons to prefer UK market exposure over the EMU:
“In addition to a low beta the UK market has several other things in its favour:
1) We forecast stronger growth for the UK economy, 0.7% in 2012 versus -0.8% in the Eurozone for 2012. We also expect inflation, that perennial UK problem, to gently recede through 2012 as the impact of the VAT hike falls out and energy
price inflation falls (even if the level of energy prices does not).
2) The Bank of England is more activist than the ECB. The BoE has already embarked on a second round of QE and our economists expect more in 2012.
3) The equity market is very international in exposure. 75% of FTSE 100 sales are outside of the UK. Obviously some of this will be to continental Europe but the majority is to either the US or EM.
4) The sector split of the UK market we also find attractive with its very large weights in commodity areas especially oil and basic resources, respectively 21% and 12% of market cap, and relatively low weights in chemicals, construction, autos and industrials.
5) Being out of the Eurozone, the UK has avoided the large commitments to peripheral eurozone countries, and so far (with the emphasis on so far) the UK bond market has avoided contagion. Indeed UK bond yields, and hence financing costs for the UK government, remain at historical lows.”
Source: Goldman Sachs
Of course bond prices wont have anything to do with the “issuer” vs “consumer” aspect of the relevant currency Im sure.
Strange this simple fact fails to dawn on those who should be more informed.
So the whole thesis here is that if you must invest in europe the uk is the least bad?
Some cross section of the sp500 arguably looks better than the FTSE on each of the points raised.
Further, although the UK isnt directly embroiled in the ongoing euro trainwreck, uk banks in aggregate generally have the third largest exposure to the piigs, after france and germany, rendering point 5 a bit cheeky.
Presumably, if the UK was in such better shape than the eurozone, the GBPUSD wouldn’t be nosediving in line with the EURUSD in each twist and turn of bad news.
Having split my time between new york and london for much of the past year, my boots on the ground perspective is that the uk economy is significantly weaker than the us. Additionally, the social stability situation here is far closer to “serious problem” than it is back on the other side of the pond.
Does someone really pay attention to GS stuff like this ? GB banks have the record exposure to Ireland, or I’m missing something ? If I want to invest to something that’s close to Europe and with really much less risk, then Denmark, Sweden and Norway are fine. I’m sure GS is not doing business in those countries so it explains all.
Really? Not a single mention of the £8,500,000,000,000 in liabilities for UK financial institutions, £4,800,000,000,000 of which are in foreign currencies, and £2,100,000,000,000 of those are in Euros! Nope, no need to mention that. Hey, so what is the size of the entire British economy relative to those numbers? Oh wait, never mind…
Stronger UK growth ???
How on earth is the UK going to achieve that ? Especially because the current UK government is also cutting back on spending.