Europe is facing fiscal, monetary and geopolitical challenges. Equity markets in the region are under pressure as stock valuations have fallen sharply.

But Sharon Bentley-Hamlyn, Investment Manager at Aubrey Capital Management, stresses that the last time markets and stocks behaved in this way – in the wake of the Global Financial Crisis of 2007-9, they recovered relatively quickly:

‘Brutal as this current market sell-off feels, it is nothing in comparison to the Global Financial Crisis (GFC) of 2007- 2009.’

‘Although the European indices took years to recover pre-GFC levels, we were not invested ‘in the index’ and recovered sooner. Then as now we were looking for opportunities that, within the confines of our strict investment criteria, were most likely to produce decent alpha. As markets tumbled during the GFC, the value of good companies dropped with the bad, the babies were thrown out with the proverbial bathwater.’

‘There are companies on our watchlist which have seen over 35% falls in valuation YTD. To be on our watchlist they must meet stringent qualification criteria of the three fifteens: a minimum of 15% EPS growth, 15% ROE and 15% CROA. Very few companies in the European investment universe actually meet these requirements. Those that do are, for the most part, intrinsically resilient and therefore capable of rapid recovery, once sentiment improves and investors cotton on to the valuation opportunity.

‘When the market does turn there will be companies that bounce back dramatically and outstrip the index. By sticking with businesses that can self-finance strong growth through internally generated cashflow, we shall be in position to take full advantage of this turnaround when it materialises.’

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