European stock markets have scaled to new heights despite
record unemployment and the longest recession in eurozone
history, with no end in sight.
It shows that stock market growth has little correlation with
Investors trading on fundamentals instead of technicals are
missing a roaring bull market that contrarians dream of.Global X
FTSE Greece 20 ETF (
), tracking the most beleaguered EU country, soared 31% in the
trailing month. It has doubled in the past year.
Vanguard FTSE Europe (
), the largest ETF by assets tracking the Continent, surged 5%
the past four weeks and 27% over the past 52 weeks. It closed
down slightly on Thursday at 52.14, near its recent two-year
peak. The SPDR S&P 500 (
) climbed 5% and 24% over those periods.
IShares MSCI EMU ETF (
), with nearly 250 stocks based in the 17-nation bloc, posted
similar returns as VGK.
),France (EWQ), theUnited Kingdom (EWU),Belgium (EWK),
theNetherlands (EWN),Switzerland (EWL),Ireland (EIRL),Turkey
(TUR) and the Nordic region (GXF) are trading at or near 52-week
highs and posted double-digit returns the past year. Even the few
that are trading below 52-week highs --Spain (EWP),Italy (EWI)
andAustria (EWO)-- have corrected only 4% to 8%.
Up There Regardless
European stock markets are defying gravity on hopes the dire
economic news will prompt the European Central Bank to beef up
monetary stimulus by lowering interest rates. That would push
more money into the banking system and force banks to lend,
investment strategists say.
"So in a way, bad news on the economy is good news for
stocks," said Alec Young, global equity strategist at S&P
Capital IQ. A risk is that the strengthening dollar will dampen
returns made in a weaker currency for U.S. investors.
Major central banks around the world, especially Japan's, are
"creating capital out of thin air, and all investment capital
right now is searching out its highest return as opposed to
return of capital," Jack McIntyre, a portfolio manager at
Brandywine Global Investment Management, said in an email.
"Clearly, some of this capital is working its way into Europe,
particularly the peripheral bond markets and European
Stock markets tend to look ahead and emerge from bear markets
months before the economy recovers. "By the time GDP figures are
released and then often significantly revised, the underlying
data is well-known and largely factored into the market," Bill
Witherell, chief global economist at Cumberland Advisors, said in
an email. He believes GDP growth will return in the second half
European stocks trade at attractive valuations, Witherell
adds. While U.S. indexes rally to fresh historic highs, Europe
ETFs still trade well below their 2008 and 2011 zeniths and have
more room to play catch-up.
Exporters could benefit from a weakening euro, which makes
their products more competitive abroad. "Luckily for European
companies, robust revenue growth in overseas markets offset the
weakness of domestic sales," Ned Davis Research Group wrote in a