sundrenched

ETF Update: Belgium, Broadband, and the Dark Knight

I'm Flemish and we're sick to death of seeing 5% of Flemish GDP being used to prop up The People's Republic of Wallonia, which has been running a 10% deficit and has been ruled by old-school socialists for decades (not to mention many corruption scandals involving Parti Socialiste officials). It's the classic welfare problem, why reform your economy if you can get someone else to pay for the shortfall? The Flemish are also scared about seeing our competitiveness erode slowly, because we need to run higher taxes than we otherwise would to keep the national budget in balance.

That said, at a PE ratio of 8 for the BEL-20, it seems cheap, and I'll put some money in when I think markets are ready to bottom. The risk that I see would not be that the country broke up (that would be positive risk beyond a transition period), but of continued gridlock at national government level. Even that is not a major concern, as most of the important powers have already been devolved to the different regions (mainly Flanders and Wallonia). No, we'll be go on like an old couple that hates each other's guts but that stays together. As the article mentions, the main stumbling block is what to do about Brussels, otherwise we'd have split already.

I've been thinking about backtesting a strategy involving country-ETFs that are at a cyclical low. Ireland, Belgium, Netherlands, Singapore, Cyprus... all have tantalizingly low average PEs at the moment, lower than my intuition tells me they should be as compared to the US (around 15). The idea is that everything returns to the mean eventually.