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 manager said he had a strong preference to Spain in the GAM Star Continental European Equity fund.
The country currently accounts for 11.5% of the €604 (£432) million fund, which compares to its 7.8% weighting in 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.’
Gallagher said he expected areas of the market hard hit during the downturn, notably advertising, to provide attractive areas of investment 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 makes up over 12% of the fund but just 0.75% of the index, is another favourite and he expected 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 [GRF_u.L], which we hold, would benefit from this pick-up in the industry,’ he said.
The GAM Star Continental European Equity fund has generated a 53.5% return over the three years to the end of March 2015.