Recovery programmes are now prime concern for EU

Concerns about a sovereign credit crisis in peripheral Europe drove equity markets significantly lower in the past few weeks, although corporate earnings results overall showed a solid improvement.

The path to economic recovery is not under threat, and current stock market levels offer opportunities for equity investors. Traditionally, in recovery phases, European stocks fare better than world equity markets. However, we are entering a period when prudent stock selection will be crucial. Investors should focus on growth “pearls” with a proven business model, high returns on equity and low valuations. Selected companies in restructuring phases also offer opportunities. Moreover, inflation is likely to remain between 1% and 2% in the coming year, an ideal environment for equities....