Ian Cowie says some of the Continent’s best companies are offering mouthwatering dividend yields these days
Pity the poor estate agents. Now there’s a phrase you don’t see very often. Barely had they begun to market Spanish villas and French gîtes as bargains because of the weak euro, than the pound began its precipitous decline.
Sterling-denominated investors may be tempted to keep their cash close to home until exchange-rate fluctuations become much less exciting. In the case of continental real estate, that would seem wise — especially when the Economist calculates that house prices in Spain remain 60 per cent higher than they should be relative to long-term average rental yields. For comparison, on the same basis, British housing appears only 25 per cent overpriced.
Unfortunately, just because things look bad now does not mean they could not be a good deal worse sometime soon. While the Greek debt drama has yet to bring the curtain down on the euro, money-market fears about a hung parliament have caused the sharpest falls in sterling for more than a year. There might be worse to come if the general election really does produce an inconclusive result.
So, counter-intuitive though it may seem, this might not be a bad time to consider some diversification away from the pound. No, this is not going to turn into another emerging markets story. The time to buy into that was more than a year ago — as I pointed out at the time, here and elsewhere. By the end of 2009, the bull argument for the tiger economies had become so wearily familiar that their setbacks this year came as no surprise.
But continental Europe may offer overlooked opportunities today. Better still, this sector is so deeply unfashionable that large blue-chips offer mouthwatering yields.
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