At the start of 2013, if one surveyed a group currency strategists and traders and asked that group to pick a developed market currency most likely to decline, after the yen, chances are the euro would have been the pick.
Looking back, it is easy to understand. The Eurozone was still grappling with the effects of the region’s sovereign debt crisis, and heading into this year, it seemed to be just a matter of time before at least one country was expelled from the common currency regime. But with the end of 2013 in sight, the CurrencyShares Euro Trust (NYSEArca: FXE) is up 4.1%.
FXE has turned in that solid showing while the equivalent British pound ETF has eked out small gain and the comparable dollar index, Canadian and Australian dollar ETFs have declined. [Euro Becomes Safe-Haven Currency]
By some accounts, the euro is overvalued, but when it comes to stocks and equity-based Europe ETFs, to which countries the euro is overvalued is what really matters.
“German exports sent outside the eurozone are billed in US dollars, but the companies have to pay their bills in euros, meaning they are buying euros in large quantities. Since the euro is undervalued for the German economy and overvalued for France, Spain, Italy and others, this has the effect of giving Germany a further competitive advantage against its neighbors,” writes Michael Ide for ValueWalk.
Indeed, the unhedged iShares MSCI Germany ETF (NYSEArca: EWG) and Market Vectors Germany Small-Cap (NYSEArca: GERJ) are both among this year’s 10 best single-country Europe ETFs. [2013’s Best Single-Country Europe ETFs]
So is the iShares MSCI Spain ETF (NYSEArca: EWP) and it is worth noting Goldman Sachs recently sound a bullish tone on Spanish equities for long-term investors. [A 2014 Game Plan for Europe ETFs]