Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy Government PANICs! Sterling Collapses! - 19th Mar 20
Coronavirus Market Crisis - Nowhere to Hide! - 19th Mar 20
Coronavirus Most Likely GDP Economic Outcome for Q1 and Q2 2020 - 19th Mar 20
How COVID-19 Leads to 2008-Style Bank Crisis - 19th Mar 20
Coronavirus Impact on Global Economic GDP Numbers - 19th Mar 20
Bticoin Crash Big Channel Review - 19th Mar 20
Gold is Doing Its Job…Silver Will Come Back as a Safe-Haven Asset - 19th Mar 20
The Chartology of Coronavirus Deflationary Event - 18th Mar 20
Fed Slashes Rates to Zero and Introduces QE in Response to COVID-19. Will Gold Rally Now? - 18th Mar 20
Coronavirus - Nothing to Fear but Fear Itself - 18th Mar 20
The Stocks Bear Market Is Upon Us... Or Not - 18th Mar 20
US and UK Coronavirus Containment Incompetence Resulting Catastrophic Trend Trajectories - 17th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Is Europe Worth the investment?

Stock-Markets / European Stock Markets Apr 22, 2015 - 03:35 PM GMT

By: GoldSilverWorlds

Stock-Markets

Europe has often been portrayed as a drag on the world economy. Although it had - and still has - its fair share of problems, are things really as gloomy as they seem? In this article, we aim to analyze Europe more, examine how things really are, and answer the question of whether an investment in European equity markets makes sense or not.


First: The Economy
Although   real   GDP   growth   estimates   for   the US are currently at around 2.9% for 2015 and thereby higher than the ones expected for Europe, which stands to grow by 1.6%, there are some indicators that suggest that the situation in Europe is improving. The improvement can be especially seen in the southern European countries, such as Portugal or Spain, that were in a recession up until 2013 and have now started growing again. Portugal, for example, whose economy in 2013 was shrinking by -1.3%, is now expected to grow by 1.5%. Similarly, Spain was able to move from a contraction of -1.2% to an expected growth rate of 2.2% this year. We are also starting to see some (marginal) improvements in the unemployment figures.

Although it is definitely too early to say that Europe is back on track, in our view, things in Europe are less gloomy than they are often portrayed by the media.

We should reiterate, however, that our long-term outlook is still not positive. Meaningful long-term improvement in Europe, as in most developed countries, may only be possible when structural reforms are allowed to get out of their infantile stages.

Figure 1: Year on Year Real GDP Growth in Selected European Countries in Percentages



QE flood will benefit the markets
In March 2015, the ECB started its QE program which is scheduled to go until at least September of 2016, whereby a total of around EUR 1.1 trillion worth of bonds will have been purchased. What impact will this have on Europe? First, we expect exports to rise. Since the announcement of the QE program, the EUR has lost around 9% of its value and almost a fourth of its value in the past 12 months. The cheaper Euro will especially support companies/countries like Germany exporting to destinations outside of the Eurozone. Companies repatriating gains from outside the Eurozone will also see their profits rise, at least as long as the Euro remains weak.

Another important aspect is that the ECB’s current purchasing of sovereign debt is in accordance with the capital keys of the respective countries in the ECB’s capital. This means that a lot more of the capital coming from  the  QE  program  will  enter larger countries in the Eurozone, such as Germany, France, Italy and Spain. In March, around 70% of the total QE bond purchases were sovereign bonds from those countries. It is therefore likely that their bond yields will decrease more strongly than in other European countries, thereby increasing the demand for cash-flow generating equities.

Inflation in Europe is forecasted to be around 0.14% in 2015 and is not expected to reach the targeted 2% inflation rate anytime before 2018. This gives the European Central Bank more leeway to continue with its liquidity injections.

What about the Euro?
As we have mentioned before, the Euro has lost substantially against the US dollar in the last year. On the one hand, we don’t expect the strong downward movement of the EUR to continue, especially because the FED has already raised concerns regarding the European QE program. They are urging Europe to implement fiscal policies and not rely so heavily on monetary measures to try to get their economy back on track.

US companies repatriating profits from outside the US are going to be hit by the strong dollar and are likely to complain about its strength. On the other hand, the stock of US dollar debt owed by non-financial borrowers outside America, especially in emerging markets, has grown by 50% since the financial crisis. According to the Bank of International Settlement, it now stands at USD 9 trillion.

As the dollar rises, this debt becomes more expensive to service in local currencies. In order to stop this critical situation, borrowers could be tempted or even forced to early redemptions of their debt. This would create demand for the US dollar and, keeping in mind the enormous amount of outstanding debt, could result in a significant upside pressure on the US dollar. So it needs to be closely monitored as to which of the driving forces for the US dollar will prevail and if the potential strong demand for the US dollar from emerging markets will impact the USD/ EUR exchange rate also.

Is Greece a risk?
In recent weeks, Greece started making headlines again, especially after the new Prime Minister Alexis Tsipras, the leader of the left wing Syriza party, took office in January. Having promised an end to austerity during the campaign, the Greeks are now looking at their newly-elected government to make good on their promises. We believe that under this new government, a Greek exit from the Eurozone has become increasingly likely.

However, a lot has changed since 2011 when the Eurozone crisis first erupted. A Grexit might cause some short-term volatility in the equity markets, but would be perceived essentially as a non-event by market participants. Around 80% of Greece’s total debt of about EUR 323 billion is held by state institutions or institutions backed by the state. The European banking system would be able to absorb a default without any stability risks. Losing the “weakest-link” in the Eurozone might even be positive for the value of the Euro.

Figure 2: Who do the Greeks actually owe?


How can I profit as an investor?

As we already highlighted in the last issue of our BFI InSights, we believe that European equity markets as a whole are somewhat cheaper than the markets in the US. When we take a cautiously optimistic expectation, the likely impact of the QE program, and the weak Euro into account, we believe that overweighting European equities as a tactical move makes sense over the coming quarters. We would concentrate our investments on strong European exporters, who are the most likely to gain.

This article is an excerpt from BFI Insights Q2 2015 which appeared on Mountain Vision, the portal from BFI Wealth Management.

Source - http://goldsilverworlds.com/

© 2015 Copyright goldsilverworlds - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules