Experts Weigh in on What Investors are Missing in Europe
A few months ago, our investment team saw meaningful signs that Europe’s economy was improving. Even though many were fixated on U.S. stocks, we were tracking this emerging strength and suggested to investors that they might want to start looking across the Atlantic.
Our team’s intuition was spot on. From the end of July through the end of October, the Stoxx Europe 600 Index increased almost 12 percent, while the S&P 500 only returned 5 percent.
The trend didn’t go entirely unnoticed. Many investors were smart to allocate to Europe. As you can see in the Bank of America Merrill Lynch chart, in recent weeks, European equities have seen the longest streak of inflows in 11 years.
However, many of these investors may be missing out on what we think are the best European opportunities to come. Take a look at the most recent data on three countries located east of established Europe. Hungary, Poland and Romania have all experienced recovering GDP growth over 2013.
That’s not the only takeaway. These countries are actually recovering faster than expected, as recent actual GDP blew away analysts’ estimates for growth.
In a recent webcast, our emerging Europe experts, John Derrick, CFA and Tim Steinle, CFA, pointed to three reasons why emerging Europe could gain significantly:
- Sentiment on emerging markets is at a low. Fund managers’ holdings of emerging market equities remain at a low that hasn’t been seen since the early 2000s and again in 2009. Given the catalyst driven by the global synchronized recovery, we believe now is the time to be contrarian on emerging markets.
- Among emerging countries, valuations for emerging Europe seem exceptionally attractive. See a valuation ranking chart here.
- With the strong rebound in Europe’s economy taking place now, emerging Europe stands to benefit. Emerging Europe is economically bound to established Europe through export trade and development funding. It should be only a matter of time for companies in the periphery of Europe to catch up to their Western counterparts.
U.S. Global Investors’ Emerging Europe Fund (EUROX) is one way investors can participate in this growth. The fund recently hit its “golden cross,” which is a technical sign that indicates when the short-term 50-day moving average crosses above the longer-term 200-day moving average.
The fund’s “golden cross” has historically been a bullish signal. Prior to this latest “crossing,” since 1998, there have only been 12 times that the 50-day has moved above the 200-day moving average. On average, from the cross above to the cross below, the return has been nearly 26 percent and has lasted an average of 312 calendar days.
Don’t miss another day: With the wind at your back, now appears the time to allocate to this area of the world. Learn more about investing in emerging Europe.
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Emerging Europe Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Dow Jones STOXX 600 Index is an index of 600 stocks representing large-, mid- and small-capitalization companies in the developed countries of Europe. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.