With respect to developed Europe, the European Central Bank (ECB) would need to implement a shock-n-awe approach to asset-backed purchases to impress the investment community. Today’s investors demand some signs of economic growth and moderate inflation before committing wholeheartedly to a region. Absent that, strong central bank stimulus toward making those things occur might suffice. Unfortunately, the ECB has yet to step in as aggressively as many believe is necessary, leaving funds like Vanguard Europe (VGK) struggling for direction.
This is not to say that corporations based in Europe lack fire power. Currency concerns notwithstanding, there are few reasons to doubt brand-name biggies like Nestle and Volkswagen. That said, European stock ETFs should be met with stop-limit loss order protection as well as a fair degree of skepticism.
The one place where I have been increasing exposure – as opposed to maintaining or lessening it — is in the emerging markets. In early May, I asked whether emerging small caps are safer than U.S. small stocks. In February, I suggested that China ETF bashers could not see the forest for the trees. Since that time, my preferred regional proxy for China and Asian neighbors, iShares MSCI Asia excl Japan (AAXJ), has picked up nearly 16.5%, while the S&P 500 SPDR Trust (SPY) has garnered about 9.5%.
