Fidelity all set to let bulls run in Europe

PUBLISHED : Sunday, 17 January, 1999, 12:00am
UPDATED : Sunday, 17 January, 1999, 12:00am

IF you are a euro bull, Fidelity Investments has launched three products denominated in the new, 11- nation single currency.

In this year's investment climate, low European interest rates, strong activity in mergers and acquisitions and developed capital markets make Europe a good long- term bet for savvy investors.

According to Bruno Lee, Fidelity's director of retail business, the euro should enable European companies to become more competitive and bring down overheads in the longer term. Investors should, however, remain prudent, maintaining a disciplined, balanced portfolio at all times.

It was here, he said, where most, and particularly first-time investors, went wrong; and with the investment environment likely to be as volatile this year as it was last year, the lessons to be learnt were plain for all to see.

Indeed, going into the final year of the millennium, many of the same questions that were being asked in January last year are being asked today.

Have Asia's markets hit bottom? Will Japan recover? Can the United States stocks maintain double-digit returns and can the US economy keep on growing? Fidelity, which manages more than US$750 billion in assets worldwide, favours a portfolio approach rather than sector or country targeting.

Mr Lee recommends a portfolio with about 52 per cent denominated in equities, 30 per cent in bonds and 18 per cent in cash.

This year, the US and Europe offer the most likely solid returns, as the positive signs (buoyant consumer confidence in the US and the restructuring of European industry under the euro umbrella) easily outweigh the negative signs (overvalued stocks, particularly in Internet- related companies in the US and uncertainty over the euro in Europe).

One caveat for investors looking at the US is that estimates for corporate profit growth are too high, according to Mr Lee. He said consensus forecasts were for 17.5 per cent growth for the full year, a figure that would be extremely difficult to attain.

In Europe, too, expectations are high but the damage can be limited if, like last year, forecasts are lowered during the year so that, by the time it comes to report, the profits are in line with expectations.

Significantly encouraging, according to Fidelity, is the speed with which the Federal Reserve moved to lower rates last year in response to worsening economic conditions. Equally encouraging was the response from European central bankers.

Fidelity believes the introduction of the euro adds another, albeit unknown, dimension to the investment climate in Europe. The key question is whether the currency acts as a catalyst for European industry and, therefore, remains a positive influence on sentiment.

Fidelity said there could still be uncertainties about a regime with monetary union but without common fiscal policies.