U.K. property remains bifurcated, with a large spread between prices and investor interest in prime and non-prime assets. While prime prices are assuredly not cheap, we would view a further softening in capital values as a signal for long-sighted investors to top up allocations.
European equity valuations are not expensive, but political risks justify a discount and the lack of easy fixes to Europe’s sovereign debt crisis may make volatility a recurring feature of the market.
While recent efforts by European authorities to expand rescue packages for peripheral countries are a step in the right direction, market volatility is likely to remain elevated until more comprehensive solutions are put on the table.
European equity valuations are reasonable from a historical perspective—pessimism about sovereign finances and a slow recovery may be fully priced in.
While European equity valuations are reasonable from a historical perspective, market pricing doesn’t provide much cover for risks stemming from sovereign finances and the halting economic recovery.
While property prices have soared over the past year, future returns are likely to be tepid, with gains capped by the huge debt overhang and limited lender capacity, but supported by the accommodative monetary environment.
Authorities have taken decisive steps recently to quell concerns about sovereign debts. However, the underlying problems will take a long time to work through and thus volatility is likely to be a recurring theme in European markets for some time.
Current events in Greece are unlikely to lead to a breakup of the European Monetary Union, but underline concerns over sovereign indebtedness and associated risks to global currency, credit, and equity markets.
On a fundamentals basis the medium- and long-term negatives for the pound seem much more numerous than the positives, but sterling could surprise on the upside should real reform and a sustainable economic recovery occur.
While prices are clearly more attractive than in the recent past, the massive debt overhang in the sector will not only hamper price recovery for some time, but could cause significantly more short-term pain.