Draghi says declining oil prices benefit Europe
On Monday, March 17, ECB (European Central Bank) chief Mario Draghi stated that declining oil prices benefit Europe and cited the economic benefits. Draghi also believes that the Eurozone has benefited from stimulus measures the Central Bank has undertaken to boost economic recovery.
Easing of financing conditions and economic reforms have turned many Eurozone indicators positive. Draghi said, “Confidence among firms and consumers is rising. Growth forecasts have been revised upwards. And bank lending is improving on both the demand and supply sides.”
ECB’s bond-buying program is making European stocks attractive
The ECB’s recent monetary easing program of buying 60 billion euros (or $64.2 billion) worth of bonds a month between March 2015 and September 2016 was approved on January 22, 2015. You can read the Market Realist series Can 60 billion euros a month turn Eurozone indicators positive? for more insight into Eurozone indicators and the ECB’s bond-buying program.
However, bond buying by the ECB has diverted investor funds from bonds to stocks as bond yields plummet in the Euro area.
European stocks are outperforming US stocks
Bonds in Europe are offering record-low returns, thanks to the ECB’s bond-buying program that has made prices skyrocket. Prices rise when yields plummet.
With European stocks surging and even outperforming the United States so far this year and Germany’s DAX index closing at record levels, investors are increasingly betting on European equities such as Daimler AG (DDAIF), GlaxoSmithKline plc (GSK), and Deutsche Bank AG (DB) over regular dividend paying bonds. US listed ADRs (American depositary receipts) of these companies have returned about 21.72%, 9.90%, and 8.96%, respectively, to investors so far this year.
ETFs offer exposure to European equity, with a hedge
The SPDR EURO STOXX 50 ETF (FEZ) offers exposure to European equities by tracking the EURO STOXX 50 Index, which is composed of the largest companies across components of the 20 EURO STOXX Supersector Indices.
With the depreciating euro against the US dollar, some investors prefer to hedge their exposures in European equities by investing in the WisdomTree Europe Hedged Equity ETF (HEDJ). This fund offers exposure to European equities, particularly shares of European exporters. At the same time, it neutralizes exposure to fluctuations between the value of the US dollar and the euro.
While the Eurozone is taking its chance at recovery and growth, Brazil continues to combat high inflation by lowering rates. Let’s take a look at that next.