The likelihood of Europe entering a recession is growing. While the length and scale of such a downturn is uncertain, investors may still want to keep an eye on the region, since it could be a better investment opportunity than other developed market equities. After all, investing during a downturn often pays off more than investing in a region that’s already recovered.
“Europe will likely enter a recession ahead of other regions, and we believe the combination of adaptive responses to the energy crisis and policy approaches, combined with the base effect, may also help Europe to begin a recovery sooner, just as other developed markets are experiencing declines in economic output,” according to research from Lazard Asset Management.
Lazard notes that risks have currently been priced into European stocks, giving them attractive valuations. And once investors feel confident that economic growth in Europe has hit bottom and is starting to improve, the fund manager expects investors to increase their allocations to European equities.
In four of the five European recessions that have occurred in the past 50 years, the MSCI Europe Index bottomed either in the quarter the recession began or the following quarter. So, investors of European equities often need to act before a confirmed economic rebound to fully reap the rewards of a recovery.
With European equities offering strong recovery potential, and valuations approaching a 10-year low, investors may want to consider the Xtrackers MSCI Europe Hedged Equity ETF (DBEU) and Xtrackers MSCI Eurozone Hedged Equity ETF (DBEZ).
DBEU seeks investment results that correspond generally to the performance of the MSCI Europe US Dollar Hedged Index. The index is designed to track the performance of the developed markets in Europe while mitigating exposure to fluctuations between the value of the U.S. dollar and the currencies of the countries included in the underlying index.
DBEZ seeks investment results that correspond generally to the performance of the MSCI EMU IMI US Dollar Hedged Index. The index tracks the performance of equity securities based in the countries in the European Monetary Union, while also seeking to mitigate exposure to fluctuations between the value of the U.S. dollar and the euro.
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