At the beginning of the year, I wrote an article stating that the Japanese stock market will have a terrific year due to a number of fundamentals. So far, I have been correct as the Nikkei 225 Index is up 9.08% and the TOPIX is up 8.63% in the first three month of this year.
My second favourite region for 2015 is definitely Europe. In specific, I expect German stocks to have a stellar year. But in this article I will talk about the Euro-zone as a whole and give reasons as to why you should invest in European Equities this year.
1) A weaker Euro should boost exports and also help domestically focussed firms – A weaker currency makes exports cheaper and the data coming out of the region so far suggests that exporters are already getting a huge benefit from the weaker Euro. Domestic firms are also helped by a weaker currency as imports become comparatively less attractive and this lessens the competition the domestic firms have from overseas,
2) The credit cycle looks to be finally turning – After two and a half years of contractions, euro zone bank lending to the private sector looks to be growing again. Lending to non-financial companies was up €11.3bn in December which is the largest increase since 2011.
3) Quantitative Easing should theoretically stave off deflation – QE is likely to boost stock markets like it has done in Japan and United States. Whilst also boosting stock markets, QE should also signal that the European Central Bank will do whatever it takes to fight deflation.
4) Germany is becoming an economic powerhouse once again – The German ‘economic machine’ hadn’t really left but the German economy was rather stagnant over the past couple of years. German sentiment indicators have now turned positive after the shock of them being negative in Q2 of last year. Other economic indicators are looking very positive too as unemployment recently fell to the lowest levels since reunification and consumer confidence has hit a fourteen year high.
5) Some of the smaller economies look to be out of the woods – Although Greece looks to be still struggling, countries like Ireland and Portugal are beginning to turn round their fortunes by cutting government spending and sorting out their public finances. Astonishingly, Ireland is currently the euro zone’s fastest growing economy.
The above five points should make you strongly consider investing in the euro-zone this year. The best and least costly way to get exposure into the European Markets is by buying an index tracker. Index trackers basically just track the market as a whole so your return will be the same as the markets. Some trackers to consider are EURO STOXX 50 (50 large blue chip stocks in the Euro Zone), FTSE Eurotop 100 (100 bluechip companies in Europe), S&P Europe 350 (index of European stocks), Dax (index of German stocks), CAC 40 (index of French stocks) and AEX (index of Dutch stocks).
Alternatively, If you need a little bit more help or you think active management is better placed to make the most of the above reasons, buy into a fund that heavily encompasses Japanese stocks.
Below is a list of funds that heavily encompass Japanese stocks that you may be interested in. As always, do your own research and know the risks involved before making any investment decisions.
- Threadneedle European select
- Artemis European opportunities
- FP Argonaut European Alpha
- JO Hambro Continental European
As always, do your own research before making investment decision.