Europe’s economy is sputtering and we are picking up fears of deflation. Meanwhile, European stocks look very cheap, especially compared to US stocks. This is because corporate earnings growth is likely peaking in America while many large European companies are still doing well.
Things are even better now that the situation with Greece is temporarily resolved. For example, Germany reported better than expected economic growth last week. Also, the Europe 50 Index is up over 9 percent so far this year and the German DAX is up 12 percent compared to 3.5 percent growth in America.
Take a look at the stock indices listed above. We believe that Americans can position themselves into these indices in order to participate in the European Bull Market run. These are some of the best performers we’ve seen and we believe these positions will outperform the American indices.
Recent Quantitative Easing programs inflated asset prices in the US and the same thing is happening right now in Japan and Europe. We believe this is an excellent time to position yourself in Europe and Japan and enjoy another Bull Market cycle over the next few years.
The big concern about investing in Europe and Japan is the strength of the US dollar. If it continues to strengthen then we can see gains eaten away by the currency exchange. This requires careful consideration.
While we believe investors should be in Europe, problems can arise around owning the currency, or not. You either need to understand how this works or choose investments that take the exchange into account for you. One solution to this dilemma is to hedge out the currency effects by choosing currency-hedged funds such as HEWG mentioned above.
In general, stay with high-quality, large-cap companies and keep in mind the fact that exporters will benefit from the depreciating euro.