Now is the time to invest in European stocks, according to fund managers from BlackRock, Fidelity International and Invesco.

The Fidelity FundsNetwork asked a number of its members for their thoughts on why now is the right time to invest in the region, even though the Greek crisis shows no sign of easing any time soon. A reason which has been cited by many investors is the general consensus that European equities are currently undervalued because of sustained fears over the sovereign debt crisis, and a failure to recognise the strong fundamentals in many European businesses which will see them grow in the future.

“Europe is currently trading at extremely attractive valuations, with a number of different valuation metrics suggesting that equities are trading well below their long-run average price levels. This suggests that current share prices do not reflect the ability of companies to grow their earnings in future, and that Europe as a region is trading at a considerable discount to history. We believe this is a fantastic entry point into European equities, as investors could not only benefit from future growth prospects but also share price rises as prices revert back to their long-term average. These types of valuation opportunities do not persist forever,” said Vincent Devlin, manager of the BlackRock Continental European fund.

Greater knowledge of macroeconomic issues and their possible implications has played its part in European equities being undervalued, according to Stephanie Butcher, manager of the Invesco European Equity Income Fund. She explained that the stocks of “well-run companies with international exposure” will still be harmed by investor sentiment towards the geographical region in which they are based, regardless of the company’s performance. However this presents investors with the opportunity to buy the stocks of quality companies at relatively low prices, said Butcher.

European companies also provide a higher yield, exemplified by the fact that the European region, excluding the UK, is currently producing a yield of 3.7 per cent per annum while global equities are only offering 2.0 per cent, according to Devlin. Companies in the region have been emphasising the importance of dividend growth in recent years, which is an attractive feature for investors, commented Butcher.

Companies who have a record of dividend growth tend to outperform the stock market and have strong balance sheets on account of their disciplined nature, according to Sam Morse, portfolio manager of the Fidelity European Fund. “They [companies who achieve sustained dividend growth] are attractive opportunities for stock pickers, as over the medium-term the stock market will reward the company for these positive attributes,” he added, before going on to highlight Nestlé as a company who has achieved this due to the pricing power the company holds.

Nestlé has developed pricing power through its innovative products, and by acquiring brand loyalty amongst customers, said Morse. In addition, the company has expanded its operation over the years to successfully create business in emerging markets, and has benefited from economies of scales to gain a cost advantage over most of its competitors, he added.

“These factors combined mean that Nestlé possesses long-term structural growth potential and is cash generative. In turn, Nestle is using this cash to fund future projects and to also increase its dividend. Given its potential its dividend growth policy seems sustainable and will boost total shareholder return over time,” said Morse.

Another feature of European stocks that may be overlooked by some investors is the exposure that these investments give to global markets. Hugo Boss, for example, has established itself as a ‘must have’ brand in China, according to Morse, who also highlighted insulin manufacturer Novo Nordisk as a firm that has become a global leader in its field, with strong earnings growth as a result of great investment in research and development. “These are only two from numerous examples of European companies that are global companies based in Europe that do not heavily rely on domestic markets for earnings and growth potential,” said Morse.

Some investors hold the opinion that Germany’s economic performance outlook alone is strong enough to warrant confidence in the European region. Not only is the export-driven nation experiencing record low levels of unemployment, and one of the leading growth rates currently seen in Europe, it is a global leader in technological developments and a major supplier to the ever-growing economies of China and India, said Devlin.