Investing In Europe—will the next 50 years be so good?

Business - September 21st, 2007
Magellan Japan

Provided by MAGELLAN:
THE FINANCIAL PLANNING COMPANY
Tel. 03-3769-5511

With all of the hype and attention that Asia gets these days, it’s easy to forget about the other continents—in particular, Europe. But the European region can be a profitable area for investors to diversify holdings, and there are many options to select from. Whether your investment is a single company or a single-country fund or a broadly diversified regional fund, look closely to make sure the investment meets your specific needs, since each can vary significantly from its peers.

The last 50 years have seen massive change within Europe and this is likely to continue with the expansion of the EEC (European Economic Community).

Economic growth
Several factors have helped to propel European economies and markets even at a time when US markets are moving at a slower pace. A wave of political reform across several European countries, such as in France, and newly elected, centre-right-leaning leaders have helped to support bull markets across Europe in anticipation of economic reforms. The euro continues to reach new highs against the dollar, and that strength raises the value of foreign sales and returns. Consumer sentiment is also strong, and the resulting spending is an important foundation for European economies. In addition, growing economies in Eastern Europe, like the energy-fed Russian economy, have helped fuel the Western European economies. Finally, expanding trade with Asia has also benefited Europe.

The European Commission forecasted economic growth in the Eurozone countries to be around 2.6 percent this year. The IMF had a more moderate 2.3 percent forecast for Europe, but that estimate also positioned this region to outpace expected US economic growth of around 2.2 percent.

Country or region?
So how best to invest? Single company shares, investment trusts, ETF’s (Exchange Traded Funds) or collective investment. Single-country funds carry more risk, since they’re subject to changes affecting that particular country, and they can sometimes be heavily influenced by changes to only a handful of stocks. One Spanish fund, for example, has about half of its assets invested in only three companies. And the bull was running in Spain last year, with an increase of nearly 50 percent, showing that concentration sometimes provides excellent returns.

Broader-based funds are usually the easiest to choose from, since you get exposure to a wide geographical area with one investment. Of course, if you want to tailor your portfolio, a collection of country funds might suit you best, so you can pick and choose the countries right for you.

Strong brand names such as Nokia—a company that is based in Finland, makes and sells its products all over the world, as does Unilever where one-third of its shareholders are American, and a quarter of its sales are generated in the US. Rolls Royce once famed for luxury cars now concentrates on aircraft engines, turbines and ship’s engines earning the bulk of their profits globally.

Europe should certainly feature in any investor’s balanced portfolio, have you got a bit of Europe in yours?