Four Reasons Europe ETFs Could Make a Comeback

European stocks and exchange traded funds (ETFs) have benefited from rising investor appetite for risk. Even though there are positive indicators for looking into investing into Europe, an investor should be aware that possible risks still abound.

Analysts are out making the case for Europe to be the next comeback story. Why?

• Some investors believe Europe is best positioned to benefit from a recovery in share prices over the next year or two, as European economies benefit from favorable monetary policy and companies projecting higher earnings, reports Dave Kansas for The Wall Street Journal.

• Valuations in European stocks have not been stretched too far. The average P/E ratio in Europe is around 16. The price-to-book ratio shows that stocks are trading about 15% under long-term averages. Additionally, historic trends shows the attractiveness of dividend yields as compared to government bond yields.

• Major European markets have jumped from their March lows. Investors are putting more money into European stocks, with inflows exceeding outflows by $2.1 billion.

• U.S. investors are also capitalizing on the weaker dollar by investing in foreign markets. The falling dollar as a result of monetary and fiscal policies will make gains in overseas markets more attractive when investors repatriate the investments, providing a “dollar kicker.”

Still, potential investors should note that Europe’s banking system remains fragile, economic activity is highly uneven and several countries are still grappling with difficult fiscal situations. The main concern in Europe is its financial system. Those outside of Europe feel that European banks are undercapitalized and banking is a large characteristic of Europe’s economy. Chief economist Carl Weignberg at High Frequency Economics also warns of possible deflationary risks.

• iShares MSCI EMU Index (EZU): up 33.8% year-to-date

• SPDR DJ Euro STOXX 50 (FEZ): up 30.6% year-to-date

• PowerShares FTSE RAFI Europe (PEF): up 56.9% year-to-date

Max Chen contributed to this article.

Comments

[talld:]

Value investing is a fine method of investing in usual times, but these are unusual times. Value investing is based on the company itself being the primary reason for the stocks movement in price.

At this time, we have the infrastructure trying to fall down around us and those things which were once so steady as to be background are now a large part of the foreground.

This time period is not like any regular investment period, as the change in the value of a stock is being overwhelmed by the recession, the bail out the financial system collapse, and occasional acts of terror. At this time, I believe a random number generator might be the best predictor for most stocks. I do think it would exceed both value and technical until we are through this period and back to some sort of normal market.

Oct 17 12:24 AM

[Plant the s...:]

The falling dollar is making me more reluctant to invest in Europe as I get a negative conversion for stock returns.

Nov 09 04:03 PM