Investec Wealth and Investment, part of UK and South Africa-listed Investec, has increased its weighting in European equities by 1 per cent for its medium risk/balanced mandate discretionary client portfolios.

The firm recommended balanced portfolio now has 7 per cent of funds invested in European equities.

Despite recent market volatility, Investec believes that structural improvements in Europe are under-appreciated and that systemic risk has materially declined. While the performance of European equities has lagged other equity sectors, particularly North American, the firm considers this an opportunity to buy, not a reason to become more cautious.

“It will take a long time to convince many people that the spectre of catastrophic systemic failure in Europe is fully banished. This, together with the low valuation of risk assets relative to insurance assets such as sovereign bonds creates an investment opportunity of both significant magnitude and duration," said Chris Hills, chief investment officer at Investec Wealth and Investment.

In contrast, the firm has reduced its exposure to investment grade corporate bonds by 1 per cent. In terms of high yield and emerging market bonds, Investec's view is that the technical picture dictates caution for emerging markets while an increase in equity exposure was preferred to an increase in high yield.

“It is interesting to note that Europe has the best risk reward ratio in developed markets. On measures of normalised earnings, Europe is the least expensive equity market globally. This is true both including and excluding financials. We have focused our attention on where Europe will be in 18 months’ time. Over the past six months we have added to Europe three times, taking a sensible, pragmatic approach to increasing exposure in our backyard," said Hills.