Europe exchange traded funds have been vexing investors for most of this year, but with the European Central Bank (ECB) meeting next week, there is a potential catalyst to finally help these ETFs shake out of their respective ruts.
According to JPMorgan Asset Management, the European stock market has gotten too cheap to resist, with valuations on the MSCI Europe ex-UK Index and the FTSE All-Shares Index at attractive valuations when their price-to-earnings ratios are adjusted for inflation over the past 10 years, reports Aleksandra Gjorgievska for Bloomberg.
Related: Brexit Opens Opportunity for Europe ETFs
ETFs such as the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) and the iShares MSCI EMU ETF (NYSEArca: EZU), which is not currency hedged, have been hindered by a surprisingly strong euro, but that is a scenario that could change as well.
Some technical analysts see the STOXX Europe 600 Index, a broad measure of European equities, as poised for a technical rally.
[related_stories]“It is seriously threatening a break above this resistance cluster. If the breakout is successful, the index could probably trade up to the mid-370′s, or about 7% higher, without a lot of trouble – that is, if the rest of the global stock market isn’t rolling over,” according to Dana Lyons.
Investors who experienced the sell-off this year as the market entered a bear market have been loath to return amid a shaky recovery. Economic data has been falling short of expectations since January and analysts project a 1.6% dip in net income for Stoxx 600 companies for the year. Economic confidence is down for two months and forecasts are for a second monthly decline in consumer prices.
Most European market observers have been critical of European Central Bank President Mario Draghi’s stimulus measures. Specifically, many believe the measures have been too little too late, even after the ECB cut all three key rates this month and expanded quantitative easing.
Related: Brexit Opens Opportunity for Europe ETFs
While the ECB’s efforts to weaken the euro this year have not delivered on par with investors’ expectations, some market observers still believe the currency is heading for more downside.
“A breakout by European stocks, however, could help prevent the global market from rolling over. As long as one major region is pressing on, the odds of a widespread global collapse is unlikely. Thus, by finally charging ahead, Europe could step into the leadership rotation and fill the void that is threatening to develop so late in the rally,” adds Lyons.
iShares MSCI EMU ETF
