European stocks are your best buy now
Short interest in the Euro Stoxx 50 hits its lowest level since before the financial crisis.
European stocks are seeing a resurgence, with the Euro Stoxx 50 Index up about 16% since the beginning of July while the S&P 500 has tacked on only about 6% in the same period.
Furthermore, the Euro Stoxx 50 is seeing the bears capitulate, with short interest in the companies that comprise the benchmark index is the lowest since 2007 (Bloomberg) -- before both the financial crisis and the more recent eurozone debt trouble of 2011.
That means it may be time to consider moving away from cooling U.S. equities and increase your exposure abroad.
So what exactly is the Euro Stoxx 50 for starters? Well, it is like the Dow Jones but for European stocks -- a composite of the biggest brands in the region, including blue chips like:
- Germany's Daimler (DDAIF), Deutsche Bank (DB) and Bayer (BAYRY)
- Belgium's Anheuser-Busch InBev (BUD)
- Italy's ENI SpA (E)
- Netherlands' ING Groep (ING)
- Spain's Telefonica (TEF)
- France's Vivendi (VIVHY) and Societe Generale (SCGLY)
Clearly, declining short interest across an index that is diverse both geographically and sector-wise, is a sign of hope for European stocks. And the recent gains, if sustained, could allow for some profitable trades in the region.
How to buy European stocks
So how can retail investors share in this success?
Well, the simplest way is to buy a diversified Europe fund. The SPDR Euro Stoxx 50 ETF (FEZ) is tied to the aforementioned index, while a fund like the Vanguard FTSE Europe ETF (VGK) has a similar makeup but pegged to a different benchmark created by the folks at FTSE.
Or, you should dive into specific stocks like the ones listed above -- or even specific countries via region-specific ETFs. These plays include the iShares MSCI Germany ETF (EWG) if you want to play Europe's biggest individual economy, or the iShares MSCI Spain Capped ETF (EWP) if you want to look at a country on a bit shakier ground.
But whatever the action you take on European stocks, remember that just because the eurozone is looking up that doesn't mean that the "all clear" has been sounded. The double-dip recession of 2011 gutted European equities and severely hindered growth here.
There's no guarantees we are seeing a European recovery. But considering that the U.S. is cooling and China remains under pressure, what options do investors really have?
Jeff Reeves is the editor of InvestorPlace.com and the author of "The Frugal Investor's Guide to Finding Great Stocks." Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.
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