Europe The Best Short-Term Investment Opportunity Outside The U.S.? [Vanguard FTSE Europe ETF]

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March 18, 2015 4:40pm NYSE:EZU NYSE:IEV

europeGeorge Leong: Regular readers of mine will know that I used to be bullish on China; I thought the Chinese economy offered a good contrarian investment opportunity. Now, I’m turning my sights to the eurozone for the top potential investment opportunity outside the U.S.


Here’s why…

Chinese Economy in 2015 Losing Steam

You don’t have to be behind the Great Wall of China to realize there are deeper issues brewing in the country of 1.3 billion people. Since assuming the role of the second-largest economy in the world, China’s economy has been caught in a downdraft, with weaker gross domestic product (GDP) growth and broad stalling across the board. There must be something about being number two. Prior to China, Japan held onto that position in 2010 and look what happened to its economy. Germany was third, but has been wallowing in the eurozone, as it spent its energy trying to save Greece and its poorer cousins in the PIIGS nations (Portugal, Italy, Ireland, Greece, and Spain).

As many of you know, I have long been a bull on China, but even my sentiment has been eroding. I expect my bullishness to continue to decline, too, at least for the foreseeable future, until the country can turn things around.

A few weeks ago, the Chinese government cut its GDP growth outlook for the country to seven percent, down from 7.5% in 2014. Now the real number is likely below seven percent, based on what we have been seeing in the Chinese economy. The two-month period of January to February pointed to more evidence of the slowing in China, with weaker-than-expected results in fixed-asset investments, industrial production, and retail sales.

The People’s Bank of China has already cut interest rates twice over the past year in order to avert a hard landing. Even this action will likely not be enough to see China’s GDP breach seven percent.

I currently would not be a buyer of China-focused investments or Chinese stocks. There are some really good companies in the country and the future continues to look bright, but I would not be there in the short- to mid-term. Until the country can show hard evidence that its citizens are spending and driving up GDP, I’m likely to stay away from Chinese stocks unless considering an investment for the very long-term.

Eurozone Investing Climate Bright for U.S. Investors?

For international growth outside of the U.S., my bet at this time is on Europe and the eurozone. The eurozone is being pumped with close to a trillion a year with easy money as a result of the recent decision by the European Central Bank (ECB) to maintain near-zero interest rates and buy back about $70.0 billion in bonds monthly. And you know what easy money does…

Growth in the eurozone will likely come in at around the 1.2%-to-1.5% range this year, which, while below domestic growth, is still pretty good. Plus, it will be aided by the quantitative easing. In addition, with the value of the euro plummeting against the greenback, the cost of European-made goods will become cheaper, helping to drive the region’s economic renewal.

The bottom line: consider having some money in safer Europe-focused investments, such as exchange-traded funds (ETFs) like the iShares S&P Europe 350 Index (NYSEARCA:IEV) fund or the iShares MSCI EMU Index (NYSEARCA:EZU) ETF. These are just two of the numerous ETFs available for investors wishing to get some exposure to the eurozone economy.

This article is brought to you courtesy of George Leong.


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