JPMorgan and ING bullish on European stocks in contrarian Brexit trade

JPMorgan Asset Management and ING Bank NV see an opportunity in the exodus from European shares brought on by Britain's secession vote.

ING's Simon Wiersma started buying stocks of the region's companies in July, and Stephen Macklow-Smith of JPMorgan Asset said he may invest more after making some purchases following the UK referendum. The verdict on their bullishness has yet to be rendered: despite a rebound, the Stoxx Europe 600 Index remains below its pre-Brexit level.

Macklow-Smith and Wiersma are adding to European stocks at a time when most investors remain preoccupied by the region's political turmoil, slow growth and declining earnings. To them, better-than-expected economic data mean the euro area's recovery will stay on track amid accommodative monetary policy, leading to more equity gains.

"Right now, Brexit's effects aren't being felt－if you look at economic surprises, clearly the economy is in better shape than economists had predicted and assets had priced," said Macklow-Smith, who helps manage $2.2 billion of European equities for JPMorgan Asset in London. He declined to specify which shares he bought recently. "What we've done is bring down levels of cash and added to high-conviction companies across the board."

Macklow-Smith's JPM Europe Equity Fund, which holds Nestle SA and Sanofi, keeps less than 1 percent of its holdings in cash. That compares with 5.4 percent held by investors globally this month, according to an Aug 16 Bank of America Corp report. He's eyeing stocks of companies that benefit from an economic expansion and those with exposure to emerging markets.

While economists have cut their euro-area growth forecasts for this year and next, recent data have signaled improvement and little impact from the British secession vote. An index tracking European services and manufacturing showed the fastest expansion in seven months, German investor confidence rebounded in Aug, and UK retail sales were the strongest they've been in any July since 2002.

Bloomberg