Fortis Recommends Emerging-Market Stocks Over European Equities

By Adam Haigh

July 3 (Bloomberg) -- Investors should buy emerging-market equities rather than European stocks to benefit from government stimulus measures in China and a rally in commodities, according to Fortis Investments.

Fortis strategist Joost van Leenders cut his recommendation on European stocks to “neutral” from “overweight” in favor of adding to an already “overweight” position in emerging markets, he wrote in a weekly report to clients dated yesterday.

The MSCI Emerging Markets Index of 22 developing economies has jumped 61 percent from this year’s low on March 2, as inflows from investors surged and stimulus plans from China to Brazil bolstered confidence. That compares with a 29 percent rally in Europe’s Dow Jones Stoxx 600 Index from a 12-year low reached on March 9.

“This is mostly related to the economic cycle as emerging markets are actually doing quite well and Europe is definitely lagging,” Amsterdam-based Leenders said in a phone interview yesterday. “We have been a bit disappointed with the European economy and leading indicators are the lowest among the major regions.”

The European Commission Economic Sentiment Indicator which Fortis says is “one of the best” leading indicators for the countries using the euro “continued its sluggish advance in June, though it still firmly points at a shrinking economy,” Leenders wrote in the report. That compares with the Purchasing Manager’s Index for Chinese manufacturing, which signals “the government spending and bank lending stimuli and having a positive impact on the economy,” he wrote.

Chinese Stimulus

China, the world’s second-largest exporter, is using a 4 trillion-yuan ($585 billion) stimulus plan to revive the economy. The European Central Bank will start buying 60 billion euros ($84 billion) of covered bonds on July 6 to free credit and encourage lending, though ECB President Jean-Claude Trichet said yesterday the bank will make sure that the measures don’t boost inflation.

Fortis, which manages about $240 billion, maintained its “underweight” stance on U.S. and Japanese equities and made no other changes to its asset allocation, Leenders said.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net