European equity markets were mixed during December, with Germany and the Netherlands driving returns higher as the FTSE Europe ex-UK index ended the month up 1.9% (£). Markets were higher despite weaker economic data, which underscored the problem facing central bankers, as the economic expansion fades and fallout from the US housing slump spreads.In a reversal of fortunes from the previous month, telecoms and healthcare stocks were among the worst performers. Basic materials were strong, so too were energy stocks as oil prices resumed their upward momentum. As risk aversion remained at elevated levels, smaller companies underperformed the wider market.The HSBC European Smaller Companies ex-UK index gained 0.4%. Elsewhere, money-market rates tumbled after the European Central Bank injected an unprecedented 350bn euros into the banking system as part of a global effort to ease gridlock in credit markets.Given the fact that leading economic indicators are deteriorating, we favour large-cap companies with strong balance sheets, as they have held up well during more difficult markets. We still see opportunities to invest in reasonably valued companies with visible growth and continue to be overweight the energy, telecommunications and healthcare sectors.During the month, fund activity was kept to a minimum. The utility sector, which generally offers good dividend yields and has defensive characteristics, has been an area which we have added to of late. Public Power, the Greek power provider, has an improved earnings outlook as a result of tariff increases and the prospect of restructuring, and we continued to add to this holding. Elsewhere we reduced our financials weighting slightly.
598.42p
