Where to invest now? Europe of course!

We are still in the midst of a market that is gyrating quite a bit and not really creating any significant momentum one way or the other. The best investment strategy my be to sit it out for a while. That being said, although we have been retracing it's been a rather tame correction overall. I concede that some may point to the crypto space as one that has corrected more, but let's remember these are 80-100%+ vol instruments which means we would expect large moves on a daily basis. Therefore a 40% correction in a couple of weeks time is in keeping with their historical trends. Not to mention they are up tremendously in the last 6-12 months. 

Although I believe that we are still not going to reach new highs anytime soon (see previous post: https://thrivingwithinterest.blogspot.com/2021/05/inflation-is-here-and-sell-in-may-its.html), there will be a point when one should look to deploy some cash. Where should an investor look? My thought is...

EUROPEAN EQUITIES

What are some of the key reasons for this?

• Valuations are much more reasonable than in the US. Take a look at the chart below, the US is the 21st "cheapest" market while many European markets are much more reasonably priced. 

 

Note:  This is also the case on a PEG basis, with European markets often at or below the US market multiple.

• European markets have largely underperformed the US markets over the past year, 2 years, and 5 years (black line is S&P 500, blue line is Eurostoxx 50)

• After being closed for more than a year, most European countries are opening up. I am certain that a number of us are familiar with people who have considered a summer vacation in Europe. That will help buoy those economies which often rely quite heavily on tourism.
• Tied into the previous point, the vaccine rollout is beginning to gain some steam (EU officials expect a tripling of vaccines in the next couple of months) and will eventually help our European friends to join the US in reopening their economies more fully and hence lead to stronger growth.
• The Euro is on the verge of breaking out, which may eventually turn out to hurt German (and other country) exports, but in the short term will help investors who have bought into Euro denominated assets. Check out the chart below:

        Note: I will admit that we must worry about US interest rate rises.

• There probably won't be too many macroeconomic shocks (famous last words) given that none of the major European countries/economies are expected to hold national elections. But as witnessed in the Middle East over the past week, never say never and we can never rule out an out of left field event.

So overall Europe should prove a fertile area to consider new investments over the course of the next month or two as markets settle down after meandering a bit since late April.

Happy hunting!