European stocks are set to continue their rise over the summer, says Praefinium Partners' Alpesh Patel. Plus why a rate cut from the European Central Bank next week wouldn't be the answer for record unemployment and low inflation.
LONDON, ENGLAND, UK (MAY 31, 2013) (REUTERS) - ANALYST AND PRINCIPAL AT PRAEFINIUM PARTNERS, APESH PATEL,
"(QUESTION: Unemployment up and inflation still well below the ECB's targets. Will we get a rate cut next week?)
It's not going to make much of a difference whether we do or not. In terms of either the likelihood of increasing jobs, creating jobs, boosting growth, or changing market sentiment because it's likely to have a marginal benefit given how low rates are in any event. So that's not actually going to be the answer. There seems to be a greater requirement not on the monetary policy side but probably the fiscal side. And that's what they really need to focus on but they can't because their hands are tied because they don't want to have lower tax revenues. I don't feel that to where they think an activity will not have any positive benefits to the broader economy will force their hands. I think they'll just keep things on hold.
(QUESTION: Okay, we've got a breaking story on the banking sector today. Lloyds, the British bank, Lloyds is selling $5 billion worth of NBS portfolio in the States, raking in a profit of around $2 billion. Pretty good news, yeah?)
It's been good news for Lloyds because they've really focused on what- on their core activities, we heard that yesterday that they're going to sell the private banking arm. They're really getting out of sort of the international markets like in theMiddle East where, which were non-core and so what I think we'll continue seeing is them shoring up their capital adequacy ratios which is what's really been the driving force behind all of this and of course the share price has gone up some 140% in the last 12 months. So this is all positive news for the bank actually. The government won't necessarily wait to get a return on this. They'll try and structure it in such a way that you can both return it to the private sector and if need be, get some kind of return further down the line. So I don't think they're necessarily going to wait to get a positive return before they sell. I think they're keen to get it into private hands well before the next general election. And I think that's exactly what they will end up doing. But I think they'll end up getting a return in any event because the trend for this stock and also the broader markets, certainly by year end is that it could easily be at least another 10% higher.
(QUESTION: The "sell in May and go away", what's happened to that old adage?)
You're absolutely right. Statistically, that adage works but this is going to be one of those exceptional years I think where it won't work. For the reason that first of all, our expectations are so low that earnings are exceeding them relatively easily which is pushing up prices. And also valuations remain pretty good because of earnings. So you've got fundamental reasons why you should be buying on dips and you'll probably get a good summer, not in terms of the weather of course but in terms of the stock market. So I think it's going to be a pretty good time over the next five months."