It wasn’t long ago that a person would have been crazy to invest in Europe. The continent’s economies seemed stuck in quicksand. Unemployment was horrendously high. Several nations appeared on the verge of economic collapse. And there was little reason to believe growth was going to appear any time soon.
But then a funny thing happened. Europe started growing again. That doesn’t mean Europe’s problems are over or it can’t fall back into a double-dip recession. But it does mean Europe didn’t slide off the globe as some people predicted. And the new found growth suggests it could even be a good place to invest.
Take a look at what’s happening in the manufacturing sector in Europe. The Manufacturing PMI (Purchasing Manager’s Index) shows that 14 out of 16 countries (that recently reported PMI) are seeing expansion in their manufacturing activities.
Any number above 50 signifies expansion, while below 50 represents contraction. Only France and Greece had lower manufacturing activity in August.
Many of the European countries are seeing multiyear highs in manufacturing:
- Czech Republic: August’s PMI was the 4th month in a row above 50.
- Spain: First monthly improvement since April 2011. New business rose for the 3rd consecutive month.
- Netherlands and Italy: 27-month high in PMI.
- Eurozone: 26-month high in PMI.
Some have said Europe has emerged from recession. Others, like the European Commission, expect the recession to end in the fourth quarter.
Next year, the European Union is projected to grow GDP by 1.4%. That’s not exactly torrid growth, but it is the beginning of a recovery. Combine low interest rates with an easing of austerity measures and you have the recipe for a real recovery.
The U.S. recovery, slow as it has been, has nevertheless included an S&P 500 that’s up 146% from the lows in 2009. Year-to-date, only Ireland and Switzerland’s stock market has performed better than the United States’, suggesting there may be bargains to be had in Europe.
For those looking to play a European rebound, here are a few ideas to consider:
The United Kingdom. England’s economy is projected to grow 0.6% this year and 1.7% in 2014. Its PMI reading of 57.2 was tops in Europe and a 2 1/2-year high. Output and new orders rose at the fastest rate since 1994.
Imagine how high those numbers would have been if the whole country weren’t obsessed with catching a glimpse of the royal baby.
Investors who want exposure focused on Great Britain can consider the ishares MSCI United Kingdom Index Fund (NYSEARCA:EWU).
Switzerland. Switzerland has been a strong performer this year. Its Swiss Market Index is up 15.6% in 2013. Its 54.6 PMI reading is the second highest in Europe.
Switzerland is the center of the European biopharma scene, with hundreds of biotech and pharmaceuticals companies located within its borders. Roche (OTCQX:RHHBY) and Novartis (NYSE:NVS), two of the largest drug companies in the world, are both located in Basel, Switzerland.
Way to Invest: iShares MSCI Switzerland Capped Index (NYSEARCA:EWL) is the best way to invest broadly in Swiss stocks. Along with the above-mentioned drug companies, the ETF also holds Zurich Insurance Group (OTCPK:ZFSVF) and Nestle (OTCPK:NSRGY).
Czech Republic. This one is interesting because its economy is clearly rebounding as manufacturing activity has grown for four consecutive months, but its stock market has not performed well this year, down over 9%. Should it play catchup, there could be big profits for investors.
Way to Invest: There is no ETF dedicated solely to the Czech Republic. The iShares MSCI Emerging Markets EMEA Index Fund (NASDAQ:EEME) has holdings in the Czech Republic (although only about 3% of the portfolio). Other holdings are in Poland, Russia, Egypt, Hungary, Morocco and others.
Komercni Banca AS (OTC:KMBNY) is a Prague-based bank with 395 branches. It is not very liquid, so be careful if you’re planning to buy or sell it.
The naysayers will continue to tell you that Europe is a stinking mess that is too dangerous to invest in. But for those of you who can look at the data and recognize when to go against the herd, you’ll realize that it may be time to get interested in Europe again.
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