While the iShares MSCI France ETF (NYSEArca: EWQ), the largest France ETF trading in the U.S., has recently seen some outflows, European stocks are not showing elevated volatility ahead of the upcoming first round of France’s widely anticipated national election.
European equity markets have lagged the U.S. for a lengthy stretch, but even amid potential Eurozone political volatility, some market observers believe Europe could be a desirable developed market destination this year.
Potential investors interested in gaining exposure to the European markets have a number of options available. For instance, the iShares MSCI EMU ETF (NYSEArca: EZU) and SPDR EURO STOXX 50 (NYSEArca: FEZ) provide access to Eurozone markets. However, the two do not hedge their currency exposure, so they may be negatively affected by a weakening euro currency.
The Eurozone macroeconomic environment has steadily improved, with a significant uptick in manufacturing and services PMIs over the end of 2016. Eurozone growth may continue to pick up speed ahead after the European Central Bank revealed increased loan demand and easing of terms and conditions on new loans to help stimulate the economy.
“In a departure from the selloffs that preceded the U.K. referendum last June and the U.S. election in November, European stocks are showing little investor concern in the run-up to the French presidential election,” according to Bloomberg. “That’s because the Stoxx Europe 600 Index is pricing in expectations of a pickup in global growth rather than a political-risk discount, strategists at Deutsche Bank AG wrote in a note.”
Investors who believe the euro currency will continue to weaken and are bullish on the Eurozone’s outlook can turn to currency-hedged ETF options, such as the the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ), iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ). These currency-hedged Europe ETFs may outperform non-hedged Europe funds if the euro continues to depreciate against the U.S. dollar.
The Vanguard FTSE Europe ETF (NYSEArca: VGK) is the largest dedicated Europe ETF trading in the U.S. Investors should note VGK is not a dedicated Eurozone ETF as highlighted by its hefty weights to the U.K., Switzerland and some Nordic countries.
As the Eurozone’s second-largest economy behind Germany, France is often an integral part of many diversified Europe ETFs.
For more information on the European markets, visit our Europe category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.