After struggling with debt issues, austerity, bailouts and crashing equity prices, Europe may finally be moving in a positive direction. It seems that the continent may have finally gotten its act together after five years of dragging the bottom. Various economic data points coming out of the eurozone continue to remain robust, while investors have finally begun moving back into European equities.
All in all, the positives are finally beginning to outweigh the negatives in the region.
That’s great news for portfolios, considering that the region accounts for more than a quarter of the world's market cap. For investors, the reignited fire in Europe could be the signal needed to finally jump in to the continent’s firms.
Longest Winning Streak
It was this time last year that Europe was facing the threat of a dreaded double dip recession and the potential break-up of the European Union. What a difference a year makes. Since that time, the situation in the region has significantly improved. The efforts of the EU and various central banks seemed to have paid off and signs of a real recovery are emerging.
First, the regions multinational manufacturers are once again producing product. Industrial powerhouses like France and Germany have seen rising production gains, but the real story could be in the long-suffering PIIG’S. Spain and Italy experienced upticks in their production, while both Greece and Portugal saw 1 and 8.2% manufacturing growth, respectively. That’s key, as these nations were some of the hardest hit by the sovereign debt crisis.
According to the latest data released by Eurostat, total factory production for the 18-nation eurozone rose 1% in August from July. That beat analyst’s earlier estimates. Perhaps more importantly, this was the third consecutive month of manufacturing gains for the region. Meanwhile, unemployment continues to tick lower and consumers have begun to spend once again.
All of this rising production growth has consumer and business confidence in the region riding at multi-year highs. The key measure of attitudes toward the European Union - called The Sentix investor confidence index - was positive at the start of September for the first time in slightly more than two years.)
Given the bullish prospects for the region to finally recover, investors like Goldman Sachs (NYSE:GS) have once again plowed big dollars back into the region. After increasing 3.3% so far in October, the benchmark STOXX 600 is now sitting at five-year highs.
Time For a European Bet
Given Europe’s recent improving situation, investors may have been presented with the green light to load up on the region’s equities. The broad Vanguard FTSE Europe ETF (NYSE:VGK) could be a great starting point for investors. The ETF tracks 509 different holdings - including well-known European names like Vodafone (NYSE:VOD) and British Petroleum (NYSE:BP). The fund has been a great performer this year and is up about 19% built on the back of Europe’s recovery. However, the fund could see more gains in the New Year as the region continues to improve. The broad iShares Europe ETF (NYSE:IEV) can be used as well.
Another big winner could be European small-caps. Given that these firms don’t have the global reach of their larger peers, smaller firms can be thought of as more domestic plays. As the recovery trickles down, the pan-region WisdomTree Europe SmallCap Dividend (NYSE:DFE) could be a big winner. Likewise, the iShares MSCI United Kingdom Small-Cap (NASDAQ:EWUS) and iShares MSCI Germany Small-Cap (NASDAQ:EWGS) can be used to hone in on the strongest economies on the continent.
For those willing to take the biggest gamble on Europe’s recovery, beleaguered Greece could be an interesting bet. The regional Global X FTSE Greece 20 ETF (NASDAQ:GREK) could be used, while individual stocks like National Bank of Greece SA (NYSE:NBG) and shipper Navios Maritime Partners (NYSE: NMM) do trade on the big boards. While investing in Greece does come with more risk than investing in Germany, for example, the rewards could be greater. GREK is up over 27% year to date.
The Bottom Line
After years of struggling, Europe may finally be turning a corner. Critical pieces of economic data are all pointing towards recovery. That’s lit a fire under European equities. For investors, it may finally be time to bet on the Old World. The previous picks make ideal selections.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.