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Spain can outstrip US growth, says GAM star Gallagher

Spain can outstrip US growth, says GAM star Gallagher

Spain is poised to grow at a faster rate than the United States over the next three years and will emerge as a shining light of the European recovery story, GAM’s Niall Gallagher has said.

In an investor update, the Citywire + rated manager said he has a strong bias towards Spain in the GAM Star Continental European Equity fund.

The country currently accounts for 11.5% exposure in the €604 million fund, which compares to a 7.8% weight in its benchmark, the MSCI Europe ex UK Index.

Discussing the outlook for the region, Gallagher said the Spanish market had made the most promising recovery efforts over the past three years.

‘The real star of the show is Spain. It is the country that achieved the greatest deleveraging and that deleveraging is now largely done,’ he said.

‘We are more positive on Spain than consensus and it is much more plausible that the Spanish economy will grow more than the US economy in each of the next three years.’

‘We are looking at roughly 3.5-4% GDP growth for Spain. Certainly alongside Ireland it will be the fastest growing market in Europe, including the UK, over the coming period.’

Advertising acceleration

Gallagher said he expects areas of the market hard hit during the downturn, notably advertising to provide attractive areas of investment over the near-term as recovery efforts improve further.

‘If we take Spanish TV advertising as an example, it fell by 60% from peak to trough and that is quite GDP linked, it is very cyclical, but the halving of advertising was dramatic. This led to consolidation in the sector as well.’

‘Last year for the first time we began to see growth again, but in order to get back to prior levels we need to see 60-80% growth in these stocks. This is well ahead of consensus for those companies.'

This, Gallagher believes, is an achievable scenario.

Elsewhere in the fund, Gallagher said Ireland, which is a 12.2% position compared to a 0.75% index weight, is another favourite and he expects the housing sector to prove particularly strong.

‘We could see five or six times housing growth in Ireland and doubling of investments in the housing sector and companies such as builders’ merchants Grafton, which we hold, would benefit from this pick-up in the industry,’ he said.

The GAM Star Continental European Equity fund has returned 76.8% in euro terms over the three years to the end of March 2015. This is while its Citywire-assigned benchmark, the FTSE World Europe ex UK TR EUR, rose 71.3% over the same period.

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