The iShares MSCI EMU Index (EZU) is an exchange traded fund (ETF) that invests in countries that are members of the European Monetary Union (EMU). France makes up 28.6% of EZU, followed by Germany at 23.2%, Spain at 11.7%, Italy at 10.5% and the Netherlands at 9.8%. Currently, it’s up 14.2% year-to-date.
As the U.S. fights fears of inflation and a possible recession, Europe anxiously watches, hoping to avoid the same fate. Perhaps one reason EZU is up is because the European Central Bank’s president, Jean-Claude Trichet, is an optimist at heart. He says that economic fundamentals remain "strong" and the growth outlook is "favorable," reports Ralph Atkins for the Financial Times. A typical scenario is that when the U.S. experiences a 1% growth deduction, western European growth declines 2%.
It’s difficult to stay positive when experts predict tough times ahead for Europe. Some analysts say Europe is just beginning to feel the effects of higher taxes, exchange rates and interest rates, according to Martin Spring for On Target in Money Week. In fact, economic tightening has cut economic growth by 0.7% in the "eurozone" over the past couple of years. Interest rates have doubled, and the euro is two-thirds more expensive in dollar terms than it was six years ago. With so many negative forces weighing on EZU, it will be interesting to see if optimistic attitudes prevail and its performance remains high.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.