Global equity markets are tumbling to start 2016, forcing investors to revisit safe-haven investments while ditching riskier assets. However, that does not mean developed markets equities are not offering opportunity. In particular, European stocks could reward investors later this year.
Last year, Eurozone equities were leading during the first half of the year as the ECB enacted an aggressive bond purchasing program and cut rates. However, the markets soured on global growth concerns and a commodity rout in August.
The ECB has been buying bonds to lower debt yields across the Eurozone, forcing investors to turn to riskier assets, like stocks, to generate decent returns. Additionally, the ECB’s actions has also depreciated the euro currency, which has benefited the regions’ exporters. [Europe ETFs Bounce on Improved Outlook for Exporters]
Increases to the ECB’s QE regime could bolster the fortunes of several well-known exchange traded funds, including the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ), iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) and the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ).
“The European domestic economic recovery is in an early stage and accelerating, particularly in peripheral Europe, creating significant catch-up potential relative to the U.S.,” according to part of a Goldman Sachs note posted by Barron’s.
In the Eurozone, the European Central Bank has been tackling slow growth and low inflation, which many observers argue are signals that the central bank could be forced to take on more quantitative easing to bolster growth. Additionally, in Japan, the Bank of Japan has been adhering to aggressive monetary policies while the government already implemented looser fiscal policies to promote growth.
However, with the ECB engaging in loose monetary policies that could dampen the euro currency against the U.S. dollar, investors can also consider euro-currency hedged ETFs, such as the aforementioned funds.
“Developed international stocks historically have delivered what we view as attractive investment returns at current valuations, especially in light of today’s relatively full U.S. equity valuations. Particularly with the Federal Reserve tightening but central banks in Europe and Japan maintaining a loose stance, we expect a macro tailwind for developed international stocks,” according to the Goldman note posted by Barron’s.
Deutsche X-trackers MSCI EMU Hedged Equity ETF
