Why well-run European funds should hold non-euro stocks

ON EUROPE

Investing in Europe might seem a recipe for disaster with worries over the euro, a sovereign default, the possibility of contagion to Italy and Spain, anaemic economic growth and the risk to French and German banks.

The euro has remained surprisingly resilient. On the Bank of England’s Effective Exchange Rate it is actually up marginally over the year. So how and where has all this worry been reflected in markets? The answer is in the bonds of the highly indebted periphery nations. Spanish, Italian and Portuguese government bond spreads against the German equivalent have moved out significantly. The market is demanding a growing premium for the default risk from these countries. Investors have taken advantage of the possibility of a financial crisis via the large cap Euro Stoxx 50 Price index. An...