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Europe is a buy in 2016: TIAA-CREF portfolio manager

·Lawrence Lewitinn

Like U.S. stocks, European equities are also having an uneasy start to the year, but one multibillion-dollar money manager is seeing buying opportunities.

Year-to-date, both the S&P 500 (^GSPC) and the STOXX Europe 600 Index (^STOXX) are down around 4%. And since the American index hit its all-time highs in mid-May 2015, it is now testing correction levels while the European index is down more than 15% in that time.

That means European stocks can be bought at a discount relative to American shares, according to Christopher Semenuk, portfolio manager of TIAA-CREF’s $4 billion International Equity Fund (TIERX).

The opportunity is on valuation,” said Semenuk. “Europe is much cheaper than the U.S. market right now. And it doesn't have all the policy interference that you have going on in the Asian markets right now.”

He is particularly bullish on Europe’s consumer discretionary shares. Though the Eurozone unemployment rate is at 10.6%, it’s down from the 12% of three years ago and is back to its late-2011 levels.

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Domestic demand has been the major component contributing to European GDP over the last two quarters,” Semenuk said. “The consumer is really driving the economic environment right now in Europe."

And he thinks fears about China’s impact on the Eurozone's economy may be overblown. “China is only accounting for 7% of European exports,” he said. “So it's not that important.”

Overall, Semenuk expects a rather sedate year for the continent compared to previous ones which faced crises from Portugal, Italy, Greece, and Spain.

“Over the last few years, every year has started out with some sort of fire that needed to be put out,” he said. As for 2016? "Frankly, [it] is one of the first years where everything looks pretty calm in Europe right now.

Structural reforms are bright spots for a few countries, including France, which Semenuk called, a “poster child for European weakness.”

“France is actually operating at a 21-month high in terms of the Purchasing Manager Index,” he said. “A lot of the reforms that were put in place over the last year in France are finally going to start kicking in this year.

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