Warburton to Moneynews: For Stocks, 'The Interest Is in Europe'

Sunday, 18 Aug 2013 01:40 PM

By David Nelson and Dan Weil

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With U.S. stocks seeming to have plateaued, at least for the time being, investor attention is shifting to Europe, says Peter Warburton, director of U.K.-based Economic Perspectives, an economic consulting firm.

"There's a certain sense that the U.S. has performed extremely well," Warburton tells Newsmax TV in an exclusive interview. Meanwhile, Japan's market is in a lull after recent stock gains, as investors wait to see what's coming on the policy front next month, he says.

"There's a good opportunity potentially in Japanese equities, but we're not really going to get any decisive sense of that for a little while," Warburton says.

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"The interest is in Europe, where obviously expectations have been severely dampened by the crisis over the last two years, and just this week we had the most positive set of national growth figures really for quite some time."

The eurozone economy grew at an annualized rate of 1.3 percent in the second quarter.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

To be sure, the picture could darken after Germany's elections next month, Warburton says: "To the extent that Germany has been working very hard to stop countries like Portugal and Greece from having another episode of crisis ahead of these elections, maybe Germany cares less what happens after the elections have passed."

"So there is a bit of a sense that maybe the eurozone crisis could reappear after the general elections."

As for European banks, they're reluctant to lend now, Warburton says. Meanwhile, "the ECB [European Central Bank] seems to have put in place a backstop for the stability of the European financial system," he says.

"It could be the banks are actually good investments. The downside has been deeply curtailed."

When it comes to emerging markets, they have been underperforming the United States in recent months, but that performance gap could narrow, Warburton says. The dollar's strength explains much of the U.S. outperformance, and he questions whether that that can continue.

"So part of the case for emerging markets is that their currencies are now undervalued and that some adjustment to the currency might also enhance return."

To be sure, while that applies to Asia, it doesn't apply to Brazil, which needs a sharply weaker currency to restore growth, Warburton says.

On the China front, uncertainty reigns, he says. "There's some talk of China tightening up, not releasing money to some of its big infrastructure projects, like the railways," he says. But the government backed off some of the austerity measures it took in May and June.

So on one hand, Warburton says "the confident belief that China was going to return to the markets and buy a lot of physical commodities again, that sentiment is still quite repressed." But on the other hand, "I don’t think the economy is performing too badly," he adds. China's economy grew at a 7.5 percent annual pace in the second quarter.

"The conditions are now in place for Chinese equities possibly to make some kind of a return," he says.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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