Time for a European Adventure?

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When I talk to people about investing in Europe these days I get some funny looks.  I guess the first thought isn't good news when you look at Greece, or perhaps to a lesser extent the Ukraine. Perhaps more astute followers of business will recognize that countries like Spain have had unemployment issues or have heard rumblings of recession in other countries.  I take a different view. It sure looks like parts of Europe today are a lot like the US was in about 2010-2011. Remember those heady days? You might not specifically, but I'm quite sure you heard the phrase "double-dip recession" if you were considering investing at that time.  You might also recall that people were scared of investing in the US at that point because of a battle over the debt-ceiling and whether the US would raise it.  Things seem to have turned out OK a few years on. 

 
Investing abroad isn't for everyone, and there are risks that you don't face when investing here in Canada.  Say, purely for illustration you were going to buy a stock that trades here in Canada, but not in the US. You face some risks of course, such as company risks, market risks, the economic situation in general and things like that.  Now if someone in say Kansas City was going to buy that exact same stock that day they face another layer of risk.  They have to convert their currency to Canadian dollars and take the risk that this could work out against them.  Of course they have those same business and economic risks as you, The point is that while there might always be investment risks, there is also the added layer of risks as a foreign investor. Just something to bear in mind as you read on. 

 

 http://www.valuewalk.com/wp-content/uploads/2015/05/Global-Earnings-2.jpg
 

This graph gives you a good idea of why more and more people are getting interested in Europe.  As you can see as far as positive surprises go Europe over the first quarter has outpaced both the US and Japan. At a time when many will likely invest in the US on the strength of the last couple of years of returns, the tide for Europe might be turning.  It doesn't stop there though as the next graph shows the revenue beat rate for Q1, 2015 as compared to the US and Japan. 

 

Lastly though (and I'm using the graphs in a different order than how they were presented in the original article which I will link at the bottom), the potential trend could be just beginning.  Looking at this graph we can see that earnings season in Europe for the first quarter of 2015 is not quite over. It's dangerous to extrapolate data like this, but if the trend continues there could be more surprises to come. 

 
 
 

 

So let me make a couple of points about investing in Europe before you just run off and start buying investments there.  First of all, Europe isn't for everyone.  I certainly haven't pressed all of my clients to consider investment there and you should discuss suitability and risk with an advisor (I happen to know a guy if you are looking!) Second, and maybe this should be the first point, I could be dead wrong.  Europe could be wallowing away at its current levels or worse for years to come and just reading this blog isn't enough to make that decision.  Lastly, I wouldn't invest in just anything European.  Even if I'm right here it doesn't mean that everything in Europe is going to rise, and while it's true that the rising tide floats all boats that doesn't really hold true for the markets. Most people aren't too excited about buying Greek assets these days for example, and that would appear to be very risky.  The lesson there is that investing because of imaginary lines on the map has its definite drawbacks. 

 

If after all of that though you come to be comfortable and understanding of the potential risks, there could be money to be made across the ocean.  If you would like to read the entire article that contains the graphs here, this is the link: http://www.valuewalk.com/2015/05/global-earnings-q1-2015/ and it's an interesting read.