LONDON -(Dow Jones)- European money managers spent the last week looking for buying opportunities as the region's stock markets corrected after four years of big gains.
Several said they found plenty to choose from, but most remained wary of anything that could be holding money-losing subprime debt.
They maintained that the sell-off that began July 26 is unjustified based on strong earnings of European companies, already attractive valuations, made more so as wary investors unload stocks, and continued regional and global economic growth. Only a small proportion of companies deserve to be battered by the problems in the credit market, they added.
On Friday, European stocks tumbled again as financial stocks were once again hit by fears that more European banks could announce big writedowns on holdings of U.S. subprime mortgages, or home loans made to those with riskier credit. The Dow Jones Stoxx 600 Index of European blue-chips tumbled 1.3% but ended the roller-coaster week down just 0.2%.
"We're now getting so caught up with the U.S. credit problem that we're forgetting the bigger picture," says Sonja Schemmann, who manages Schroder's Global Equity Income Fund, among others. "Now is the time to reassess but there's been a lot of indiscriminate selling."
She highlights the financials sector as one that's been most hit across the board but not always justifiably.
Over the past week, Schemmann increased her fund's stake in Societe Generale (Euronext:13080) ( 13080.FR) and Allied Irish Banks (NYSE:AIB) (AIB). Both are winners in her mind because of their exposure to Eastern European lending and their growth in second-quarter earnings.
Societe Generale, which reported strong results last week, gained 1.7% on the week. Allied Irish climbed 4.6% last week.
Those stocks were among the exceptions. In this latest sell-off, finance- related stocks have been hardest hit. The Stoxx 600 financial-services index, which includes money managers like hedge-fund giant Man Group of the U.K. and property financers like Hypo Real Estate in Germany, has tumbled 6.6%. The insurance index is down 3.9%, and the banking index is off 2.9%. (Last week, the banking and insurance indexes ended with small gains.)
The biggest jolt in Europe: IKB Deutsche Industriebank (XETRA:IKB) (IKB.XE), a specialist lender based in Duesseldorf, which had to be bailed out by a group of German banks after it faces possible losses of as much as EUR1 billion because of its exposure to the U.S. subprime market. Disconcertingly for investors, the rapid unraveling came only 10 days after IKB played down its exposure to the sector when it released its latest earnings report.
