Towards the end of 2015, strategists everywhere were betting on improved equity performance by European stocks in 2016. The general consensus was that you were better off selling US stocks and buying European ones, and the outlook was generally positive that the latter would perform well this year.
Although off to a sluggish start at the beginning of the year, the European stock market remains healthy and is on course to prove its detractors wrong. The market has proved its robustness in the face of the unforeseen events that marred its growth in 2015. These include the unexpected slump in commodity prices, the shock of the Greek debt crisis, as well as the aftermath from the slowdown of China’s economy. Even though these events played havoc with the region’s investment market, it managed to hold its own and even outperformed its US counterpart.
If you’ve invested heavily in European stocks, you’ll be aware that the current uptrend started early in 2015. This happened after Mario Draghi, the head of the European Central Bank (ECB), announced a bond buying program that was launched in a bid to revive the lagging eurozone economy. The ECB would buy 60 billion euros in bonds every month from early 2015 to late 2016. This program, coupled with the schemes already in existence to buy up private debt and channel euros to banks in the form of cheap loans, would release billions of much-needed euros into the economy.
The European economy, which has been laboring under slow growth and high unemployment, reacted positively to the announcement with shares soaring to a seven-year high. In spite of existing doubts among some investors on whether the current appreciation of shares is sustainable in the long run, some stocks in the market continue paying big dividends. These include multinationals such as L’Oréal, the French health and beauty products company, and Unilever, the British consumer goods giant.
Another factor leading to the upswing of European stocks is the collapse of oil prices and the subsequent fall of energy costs. Lower energy prices in turn led to an increase in consumer spending across the markets. With the boost in credit growth thanks to the ECB, increased consumer spending and confidence, as well as a positive outlook on eurozone earnings, you could still be in for good returns from the European stock market, if you know where to invest.
Promising sectors to invest in
There are some European stocks that show promise in 2016; these are what you should focus on as you look for new shares to put your money in. Before you commit to making an investment, it is important to consult a dedicated investments expert such as Ken Fisher to advice you on the best way forward. Fisher is the founder and CEO of Fisher Investments, a money management firm. He is also the author of more than 11 books on investing, and is a long-time financial columnist for Forbes magazine. His online investment articles are an invaluable source of information for investors, both novice and seasoned.
Promising European market sectors worth looking into include the financial sector, where banks are expected to be the biggest beneficiaries of higher bond yields. Barclays and Deutsche Bank are two of those you should watch out for. Domestic spending is expected to increase as consumers continue to gain confidence in the economy. This means that clothing and retail companies’ stocks might do well, so you can also take a look at these. The travel industry is another sector that is expected to improve performance as people once again feel confident enough to spend money on traveling.
On the other hand, the automotive industry is going through a rough time due to decreased demand for luxury cars from China. This weak foreign demand for products will also affect other businesses that primarily rely on income from exports. Since China and other emerging economies account for nearly a quarter of eurozone exports, this slowdown is likely to affect quite a number of companies. You might want to hold off investing in such stocks until the situation improves or demand goes up again.
Market volatility will still influence investors in the coming year, affecting their choice of shares. The choice of whether or not to invest in European stocks remains yours. However, when picking shares to add to your portfolio, you need to consider several things. These include the rising consumer confidence and stronger economic growth in the region set against the backdrop of a strong dollar and a weak euro.