Tags
2017, brexit, euro, europe, european, forecast, france, Fund, funds, germany, mutual funds, the netherlands, theory, thoughts
This is the second post on this series, which is basically my note on where to invest for the year 2017. On this particular post, I’m looking into Europe area.
From chart above, I have selected few index which I believe can represent Europe rather well. A thing to note is, Europe being a developed market, most of its companies are actually international, and a rather huge chunk of their revenue are from market abroad. An example will be Daimler AG, which their sales are worldwide.
I have selected 2 composite of European index STOXX50 & FTSE100, and at the same time, I have chosen 2 largest economy within the EURO bloc, Germany (DAX) and France (CAC). Their respective return over 5 years period are:-
- STOXX50 – +31.46%
- FTSE100 – +23.52%
- DAX30 – +71.38%
- CAC40 – +42.80%
All of them are actually giving positive returns for this period, albeit with rather huge volatility obviously. Particularly from 2 quarter of 2015 onward, the trend is relatively downward.
Politics
There will be 3 major elections in the European region, The Netherlands (March), France (May) and Germany (November). Together, 3 of these nations make up of more than 50% of the euro zone economy. With the recent populist movement that have totally shaken up the world in both Brexit and Trump as US President, this is definitely a risk for the investor to carefully weigh in. The main issue that I believe will drive the election results is the immigration / refugees.
At the same time, UK will be triggering Article 50 regarding the Brexit that was voted last year. The plan and strategy of leaving the Euro bloc will definitely influence and impact Europe financially.
Currency
From the 5yr chart of EUR to USD foreign exchange, it has been low and stayed low since end of 2014. This is welcomed from the context of exports and further driving corporate profits.
Valuation
Europe current valuation stands around 15.1 PE, which is higher than it’s fair PE of 13.8. This indicates the equities of the region is expensive relative to its usual range, and the risk is relatively higher than usual.
Summary
Being a developed market, the returns in Europe would be relatively lesser than other markets. Its risks in 2017 is quite apparent, however, do not forget the business of these Europe companies are worldwide, and impact of geopolitical risk on its impact shall be limited. With global growth predicted to be positive, this should aid the European companies with their global market target of their enterprises.