With the bull market in U.S. stocks aging and investors increasingly feeling stocks here are richly valued, some are turning to Europe and the related exchange traded funds in search of bargains. Eurozone stocks and the related exchange traded funds have been impressive performers this year. For example, the iShares MSCI EMU ETF (NYSEArca: EZU) and SPDR EURO STOXX 50 (NYSEArca: FEZ) topped the S&P 500 in the first quarter.
The Eurozone ETFs are also attractively priced relative to U.S. markets, especially after a multi-year bull run has pushed U.S. equities to record highs, with many areas either fairly priced or trading above their historical values. For instance, EZU is trading at a 14.6 price-to-earnings and a 1.5 price-to-book and FEZ shows a 14.2 P/E and a 1.5 P/B, whereas the S&P 500 Index is hovering around a 18.7 P/E and a 2.7 P/B.
“After the ferocious Trump rally lifted U.S. stocks to record highs, fund managers have also become more cautious about Wall Street. Their allocation to U.S. stocks has plunged to the lowest level since January 2008, according to the BofA survey that was released on Wednesday,” reports Matt Egan for CNN Money.
The iShares MSCI France ETF (NYSEArca: EWQ), the largest France ETF trading in the U.S., has seen modest inflows to start the year ahead of what could potentially be a controversial election in the Eurozone’s second-largest economy.
“Markets view France’s presidential vote as the next potential electoral shock. Populist candidate Marine Le Pen, who has flagged a referendum on EU membership and reintroducing the franc, appears poised to make it to the final round of the two-round voting system,” said BlackRock. “Yet if she does, polls suggest she will likely lose, with a polling gap far wider than that seen ahead of the Brexit and U.S. election surprises. Even if Le Pen were to win, we believe she would have a hard time securing a majority in parliament, lowering the near-term risk of a eurozone breakup.”
“Despite those concerns, investors have been lured into European stocks by hopes that a rebound in corporate profits there will make current low valuations look cheap in retrospect. BofA said cash is rotating out of U.S. stocks and into the eurozone at one of the fastest clips since 1999,” according to CNN.
Investors have added over $393 million to FEZ this year and nearly $1.5 billion to EZU.
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.