I gave my thoughts on European stocks to U.S. News and World Reports:
European stock markets are on a tear this year, showing double-digit gains that far outperform the returns of U.S. stocks. One of the main drivers of blistering gains in European stocks is monetary stimulus from the European Central Bank – and analysts say the rising trend in stocks in Europe may just be getting started.
The Dow Jones industrial average has gained 0.15 percent so far this year through June 5, while the Stoxx Europe 600 index has skyrocketed 13.6 percent. Individual country performance within the euro area is also impressive. Germany’s main stock index – the DAX – is up 14.2 percent, while France’s CAC 40 index is up 15.2 percent and Spain’s IBEX 35 is up 7.6 percent.
What’s Behind The Healthy Gains?
In an effort to battle back against weak economic growth and potential deflationary economic conditions, the European Central Bank has been supporting the economies there with bond purchase programs, similar to actions by the U.S. Federal Reserve in recent years. In January, the ECB announced an expanded asset-purchase program totaling €60 billion per month, which equates to roughly $66.6 billion at the current exchange rate, and the economies and stock markets reacted positively. Gross domestic product growth in the eurozone was 0.4 percent for the first quarter, and was up 1 percent year-over-year.
While the U.S. stock market is now in its sixth year of a rising trend, some analysts say European stocks are just getting started on a new up cycle. “Investors had left Europe for dead, but eurozone GDP growth might actually finish the year higher than U.S. GDP growth. The European economy appears to have bottomed out, whereas the U.S. economy may be topping,” says Charles Sizemore, founder of Dallas-based Sizemore Capital Management, an investment advisory firm…
Looking ahead, analysts are optimistic that European stocks will offer a solid investment opportunity. “Trends like these do not turn on a dime, and I expect European stocks to outperform U.S. stocks over the next five to 10 years. Not every year, of course, but total returns over that period should be significantly higher in Europe,” Sizemore says.
Within Europe, Sizemore says Spain has the most upside. “Spain got hit hard by the crisis, and its unemployment rate is still over 20 percent. But it is in markets that have taken the most abuse that we have the best upside potential. Spain should have reasonably good growth this year, and its companies are among the most globally diversified in the world,” Sizemore says.
For more targeted exposure, Sizemore points to the iShares MSCI Spain Capped (ARCA:EWP). “It’s a collection of Spanish blue chips and a great way to play a rebound in Spain,” he says.