The iShares MSCI Germany ETF (NYSEArca: EWG), the largest exchange traded fund tracking German equities listed in the U.S., is up 14.3% year-to-date and data out of the Eurozone’s largest economy indicate more upside could be coming for German equities.
Improving economic conditions and strengthening company earnings in Europe are signals that diversified exchange traded fund investors should keep in mind when looking for areas of potential growth after a multi-year run in U.S. markets leaves less opportunities at home.
With regards to Eurozone politics, France just completed its widely watch national elections, but Germany and Italy, the Eurozone’s third-largest economy, hold elections later this year.
“Germany’s first-quarter GDP highlights the key factors that are contributing to a persistent and broad-based economic recovery in the eurozone,” said Fitch Ratings. “German GDP rose 0.6% quarter on quarter in 1Q17, the Federal Statistics Office said today. The seasonally and calendar-adjusted annual increase was 1.7%. Provisional data showed that continued increases in household and general government consumption, rising foreign trade, and a jump in capital formation helped by a mild winter boosting construction, all contributed.”
With its heavy tilt toward large, multi-national companies, the DAX index benefits from depreciating euro currency. A weaker euro would help support export growth and potentially generate greater revenue from overseas operations for the multi-nationals.
“The quarterly GDP growth is slightly higher than Fitch’s forecast of 0.5% in our March Global Economic Outlook and highlights several trends that underpin the eurozone’s cyclical recovery. Improving labour markets provide a key support to household consumption growth. (Away from Germany, flash estimates on Friday showed that French non-farm payroll employment increased for an eighth consecutive quarter.) The pick-up in global growth remains on track and we forecast global growth at 2.9% this year from 2.5% in 2016. Loose monetary policy is feeding through to rising bank credit to the private sector and contributing to the strength of the German housing market, where orders for new buildings are growing,” notes Fitch.
Alternatives to EWG include the currency hedged iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG), the Recon Capital DAX Germany ETF (NasdaqGM: DAX) and the Deutsche X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR), which is also currency hedged. DAX, the ETF, is the only U.S.-listed ETF that is a pure DAX index tracking fund.
For more information on hedged options, visit our currency hedged ETFs category.