So, given a Fed on hold, we could see other central banks, including the ECB and BoJ, augmenting their own monetary stimulus measures in order to weaken their currencies.

Easy Money and the Impact on Equities

The likelihood of continued easy money is one of the reasons I see a compelling case for considering exposure to stocks in Japan and Europe, and within Europe, to large exporter Germany in particular. It’s true, of course, that the ultimate path of monetary policy—and the dollar—remain uncertain. Yet after recent comments from Fed Chair Janet Yellen, I see the Fed raising rates by year’s end.

But regardless of when liftoff occurs, rates are likely to remain low in the U.S. for the foreseeable future. The Fed has made it clear that it will raise rates slowly and keep them low for longer, as it tries to normalize monetary policy without damaging the U.S. economic recovery.

Market Fundamentals in Japan and Germany

That said, even if future central bank policy moves surprise the market, equities in Japan and Europe (and particularly in Germany) look attractively valued following recent market volatility. In my opinion, stocks in these regions have sold off too much since the start of the summer, given fundamentals in both markets.

Exchange traded funds (ETFs) such as the iShares Currency Hedged MSCI Eurozone ETF (HEZU), the iShares Currency Hedged MSCI Germany ETF (HEWG) and the iShares MSCI Japan ETF (EWJ) can provide access to stocks in the eurozone, Germany and Japan, respectively.

 

Heidi Richardson is a Global Investment Strategist at BlackRock. She is also Head of Investment Strategy for U.S. iShares.