Time To Get Bullish On Emerging Europe

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March 29, 2017 9:33am NYSE:FEZ

Frank Holmes of U.S. Global Investors brings us seven big reasons to be bullish on Emerging Europe as an investment vehicle right now.


1. Eurozone PMI at a Six-Year High

For the month of March, the preliminary purchasing manager’s index (PMI) for the eurozone reached 56.7, its highest reading since April 2011. Significant gains were made in new work and backlogs of work, employment and service sector job creation.

Eurozone PMI and GDP Holding Steady
click to enlarge

2. European Economic Sentiment Holding Above Its Long-Term Average

For the month of February, the Economic Sentiment Indicator (ESI)—which measures industrial confidence, services confidence, consumer confidence, construction confidence and retail trade confidence—posted a score of 108, safely above its 26-year average of 100.

Europe's economic sentiment indicator still rising above its long-term average
click to enlarge

3. Emerging Europe Manufacturing: Full Speed Ahead

When Western Europe is performing well, Eastern Europe typically benefits by proxy, as the latter exports to the West. With a thriving manufacturing industry that’s attracted top international corporations such as Mercedes-Benz, GM, Audi, Bosch, Lego and Nestlé, just to name a few, Hungary led all others in February, posting a PMI of 59.5.

Emerging Europe Manufacturing SEctor Looks Strong
click to enlarge

4. The Migration Crisis Has Abated

Mediterranean sea arrivals into Europe have fallen to 2,731 a month, from a high of 220,000 in October 2015. This is important because concerns of immigration and terrorism have largely driven recent secessionist and anti-European Union sentiment, most notably among far-right hopefuls such as the Netherlands’ Geert Wilders and France’s Marie Le Pen.

Refugee Crisis is an Overstated Risk
click to enlarge

5. Trump and OPEC May Have Helped Russian Stocks

The election of President Donald Trump, who has repeatedly praised Russia and its leader Vladimir Putin, as well as crude oil production cuts by the Organization of Petroleum Exporting Countries (OPEC), may have helped Russian stocks shrug off recent declines in the price of Brent oil. With the country coming out of recession, BCA Research just overweighted Russian equities, the ruble and credit relative to other emerging European states.

Russian Stocks Shrug Off Brent... Trump to Thank?
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6. Poland Making Good on Promise to Support Families

The Polish economy has lately benefited from increased social spending and wage hikes. The government delivered on its Family 500+ program, giving each family with more than one child 500 PLN ($130) per child per month. This has doubled some families’ disposable incomes and led to a recent surge in new private housebuilding starts. What’s more, Poland is currently experiencing a baby boom, which should support economic growth in the years to come.

Private Housebuilding Starts in Poland Have Recovered Strongly
click to enlarge

7. Attractive Valuations

Finally, European stocks look very attractive compared to U.S. stocks, down slightly more than one standard deviation. This should be especially enticing for investors who believe American stocks are too expensive right now.

Euro Area at Historically Inexpensive Valuations
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Explore Investment Opportunities in Emerging Europe

The SPDR EURO STOXX 50 ETF (NYSE:FEZ) was unchanged in premarket trading Wednesday. Year-to-date, FEZ has gained 9.21%, versus a 5.16% rise in the benchmark S&P 500 index during the same period.

FEZ currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #6 of 91 ETFs in the European Equities ETFs category.


All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The Purchasing Managers’ Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The Economic Sentiment Indicator (ESI) is a composite indicator made up of five sectoral confidence indicators with different weights: Industrial confidence indicator, Services confidence indicator, Consumer confidence indicator, Construction confidence indicator Retail trade confidence indicator. The economic sentiment indicator (ESI) is calculated as an index with mean value of 100 and standard deviation of 10 over a fixed standardized sample period.

The MSCI Russia Index is designed to measure the performance of the large and mid-cap segments of the Russian market. With 21 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Russia.

The MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of September 2002, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The Shiller PE ratio, also known as the P/E 10 ratio, is a valuation measure, generally applied to broad equity indices, that uses real per-share earnings over a 10-year period.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 12/31/2016.

About the Author: Frank Holmes

frank-holmesFrank Holmes is the CEO and chief investment officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal, and in 2011 he was named a U.S. Metals and Mining “TopGun” by Brendan Wood International. He is also the co-author of The Goldwatcher: Demystifying Gold Investing. More than 30,000 subscribers follow his weekly commentary in the award-winning Investor Alert newsletter which is read in over 180 countries.

Under his guidance, the company’s mutual funds have received recognition from Lipper and Morningstar, two trusted independent financial authorities. In 2015, Mr. Holmes led the company into the exchange traded fund (ETF) business with the launch of the U.S. Global Jets ETF, which invests in the global airline sector.


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