Market sentiment has soured so much in recent weeks – caused by developments such as fears about government debt – that some equities are starting to look attractive, such as bank stocks, argues Invesco Perpetual.

“With no change to our outlook, the volatility of recent weeks has thrown up opportunities for our valuation-driven approach. The most obvious example of this has been the financials sector in continental Europe. Overall, the underweight within this sector is at its smallest in years,” said Jeff Taylor, head of European equities at the asset management firm.

Taylor said there are positive forces on a number of fronts: “We see tailwinds through inventories rebuilding, improving consumer and corporate balance sheets, and investment cycles in specific areas.”

Invesco Perpetual is, for example, overweight industrials, with a bias to the civil aerospace sector, because it thinks it is in the very early stages of a multi-year upturn in the US after several years of under investment. It is also bullish on the automaker Daimler because it expects there will be a long-lasting upward cycle in truck demand in the US.

“The recovery scenario has been backed up by economic data, a fact the markets have lost sight of in the turmoil. The US ISM survey is at a 20 year high, German exports have been buoyant and the jobs data is pointing in the right direction,” Taylor continued.

“Markets and sectors are seeing very heavy sell offs. This creates opportunities in stocks we own and others we do not. The fund manager's job is to assess these valuation opportunities. The clearest example of where we have used volatility opportunistically is the financials sector in continental Europe,” he added.