If your clients are on the hunt for international exposure in developed markets, exchange traded funds (ETFs) can certainly help with that. But recent developments – particularly in Europe – are illustrative of the fact that the timing may not always be optimal for exposure to these markets.
The European Economy
Europe’s economy actually has a number of moving parts. While investors can certainly view the continent in one lump, it’s made up of many diverse economies and cultures. In the current climate, it’s interesting to see how the various economies in Europe have dealt with financial crisis.
Ireland is seemingly close to default and denying that they need any form of bailout, while countries like Sweden are on more solid ground, thanks to a history of fiscally conservative policies.
Eastern Europe, on the other hand, consists largely of developing and newly-developed economies, including Poland, the Czech Republic and Hungary. Those economies, too, are coping with crisis in different ways. Poland has managed to survive and thrive in the aftermath, while Hungary briefly grappled with its own debt crisis earlier this year.
The point is, when you think about Europe, it’s important to consider all the moving parts and regions, because the economies that make up this large continent are far from carbon copies of one another.
Europe in the Present
Although Europe’s financial issues are most striking in a few countries, the impact is felt throughout the region.
The financial problems primarily in Spain, Italy, Greece, Portugal and Ireland have resulted in the European Union’s adoption of austerity measures, higher taxes and reductions in federal spending. Naturally, that hasn’t sat well with citizens of those countries, though it’s widely viewed as what’s needed to bring these countries back into solvency.
For the short-term, austerity measures could eat away an estimated 1.5% from overall GDP growth in Europe, but over the long-term, these policies will help fortify the European block. No European Union member has defaulted on its debt and recent sovereign debt offerings from “troubled” eurozone members have been well received by the markets.