Europe Appears Poised Not for Economic Collapse but Steady Rebound

Rumors of Europe's Demise Greatly Exaggerated and May Cause Investors to Miss Growth Opportunities, Martin Currie Says

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Sep 28, 2015, 09:30 ET

LONDON, Sept. 28, 2015 /PRNewswire/ -- The global media may be obsessed with the seemingly imminent collapse of the European economy, but the investment professionals at Legg Mason affiliate Martin Currie instead see significant – and growing – opportunities for investors. To them the European "story" is a great deal more positive than the naysayers want us to believe.

"Even amidst the noise, this is the best outlook for Europe we have seen in 20 years," said Martin Currie investment director Michael Browne, who co-heads European long/short strategies. "We had the most astonishing level of economic reform and regulation changes. Plus money was created. It takes time to create opportunity, and that is most definitely occurring."

Martin Currie sees the European economy as less like the speedy hare of Aesop's fable than the steady tortoise. Mr. Browne cited quantitative as well as qualitative factors to justify their optimism.

"During the Industrial Revolution, which made Europe into a powerhouse, economic growth was 1.3 to 1.4 percent a year," he reported. "This year it's at 1.4 to 1.5. Next year the consensus projections are 1.9 to 2. Luxury brands are doing especially well. Economic growth overall is already positive and continuing to improve."

As a result of all the turmoil, living standards in Europe – on a relative basis – have recently experienced what Martin Currie considers "a big fall."

"Europe has faced a debt crisis stemming from certain countries overspending, of that there is no doubt, but when situations like this happen the size of the state often shrinks. That can be very positive for the private sector, which can move more freely to fill the voids governments leave."

"In a big swath of history, this led to major restructurings," Mr. Browne said. "It's tied together with historically low interest rates and falling oil prices. Yet at the same time corporate balance sheets have been cleaning up to some of the best debt levels we've seen since the early 1990s."
"The question is will it bite and take hold, or is this yet another false alarm? We think it's real." Continued pessimism on Europe's outlook results from media interests, in Martin Currie's view.

"We don't name good things, do we?" Mr. Browne posed. "Hurricanes, market crashes, wars, depressions: bad news sells newspapers. Meanwhile Spain has faced down a painful recession with growth that's been upgraded to 1.2 or 1.3 percent. We keep hearing about an immigration 'crisis,' but managed well, it could breathe much-needed life into Germany. Longer-term, migration could turn out to be really good news for Europe; a big piece of the growth puzzle."

These are difficult times for over-leveraged governments, but Martin Currie believes too much is being made of their impact. As Mr. Browne said, "The doomsayers focus on Greece, Greece and more Greece – whose economy is smaller than Apple's cash pile. It's simply not that big a deal."

Instead, Mr. Browne and the Martin Currie team focus on the positive aspects of integration.

"Europeans are now asking: What can I sell to my neighbors?" Mr. Browne said. "That's the real benefit of one large market. Countries tend naturally to trade with those closest. Who realizes that the UK trades more each year with Ireland than with India? Even with the huge difference in population? It's true. German imports and exports with China are closely balanced – and about the same as Germany's with Switzerland, next door. We want to trade with our neighbors. It's quick and easy. Most countries prefer to trade within Europe than go out to Asia or the U.S."

While moving the right direction, Martin Currie believes more needs be done to help Europe.
"When the banks start to lend again so people can buy property, that will create opportunity," Mr. Browne said. "There's been pitching and mending, but there is huge pent-up demand in the housing market. The long-term levers are there, with low interest rates and quantitative easing."

"This is a positive Europe story. Right now we believe Europe is the tortoise – who never loses to the hare."

About Michael Browne
An Investment Director and co-manager of European long/short strategies based in London, Michael Browne joined Martin Currie in 2010. Previously he co-managed the European hedge fund of Sofaer Capital, from 2001; was head of international equities at Chase Asset Management, where he had overall responsibility for all non-U.S. equity portfolios; and began his career in 1986 at BZW Investment Management, where he was responsible for a variety of European unit trusts and segregated funds. Mr. Browne received a degree in economic history from Brighton College, Durham University in 1981.

About Martin Currie
International in outlook and activities, with offices in Edinburgh, London, Melbourne, New York and Singapore, Martin Currie is an independently managed investment affiliate of Legg Mason Inc. Self-directed, innovative in approach and able to take a long-term view, the company actively encourages employee engagement across all areas of its business. This commitment closely aligns the firm's aspirations with those of its clients, enabling a culture of individual responsibility and shared success. Martin Currie builds global, stock-driven portfolios based on fundamental research, focused on core areas of investment expertise.

About Legg Mason
Legg Mason is a global asset management firm with $682 billion in assets under management as of August 31, 2015. The company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).

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