Speaking of investments in financial assets, is it the right time to disinvest from emerging economies and return to the European equity? On the outset, we have seen recovery in Pan-Euro countries, ie: Paris in France, and San Paolo in Italy. Investors are gaining confidence in market as ibanks such as Goldman Sachs rises exposure to the E.U. equities.
Prior to purchasing any Euro equity, we should assess the following risk factors:
1) Political instability
2) Fluctuations in investment costs
3) market sentiment & any events affecting currency’s performance
There is no hardline answer as to what strategy/position we should take on. As fixed income bond demand is increasing, we see lower margins from emerging market assets. Investors are more attracted to European equities. I will mention briefly the market trend and provide insights as I see appropriate to the situation.
The rationale behind shifting away from emerging markets to Euro is as follows:
Since emerging markets are moving in tendum with developed markets, it is best to hedge our risks if we insist on maintaining equity holdings in China/India. In my opinion, it is best to reallocate investments to assets with less correlation and co-movement tendencies with the United States’ political and military actions. Thus, I recommend to stay away from oil & mineral commodities subject to political tensions and uncertainties between Middle East and North America.
However, this positive momentum doesn’t come so easily across sectors. For the auto-industry, they have reached the trough with drastic sales decrease and meagre/negative profits due to overcapacity. Christien Klingler, the sales chief at VolkesWagen, pointed out the benefit seeps through gradually with slow stabilization effects.
With an increase in exports and regional spending, the E.U. regions are slowly showing signs of revivals. Economists are prudently awaiting for major stimulus and remedial measures to come into effect. At this point in time, we are still keeping a watchful eye on unemployment rates and consumer spending. Currently, unemployment hovers at high rate of 12.1% across the 17 Euro-Bloc countries. Consumer spending remains low on durable and luxury goods. Hence, it is best to stay put and await for full recovery.
On the brighter note, PSA Peugeot Citroen and VolksWagen have indicated upbeat tone on sales; indicating a positive forecast for 2014. Carlos Ghosn, Head of Renault, estimated a 3% growth in global auto market this year. Nissan Motor, on the other hand, provided a more conservative estimate of 1.5%. Overall, we would expect the industry gaining momentum as it reaches “the end of the tunnel next year.”
For the time being, demand for luxury cars remain low within Europe. It would take another year or two for car brands such as VW’s Audi to recapture the Euro-market. Not surprisingly, Asian and North American demand rises for premium car brands from the German manufacturers: VW, BMW and Daimler. This robust growth has enabled auto-industry to thrive despite a downward pressure of car prices in Europe.
References
Cremer, Andreas & Frost, Laurence. “European Car-makers see long roads to recovery.” Sep 10, 2013. Thomson Reuters.<<http://www.reuters.com/article/2013/09/10/us-autoshow-frankfurt-idUSBRE9890AD20130910>>.
Wheatley, Jonathan. “The Emerging Market Growth Story Dies.” <<http://www.ft.com/cms/s/0/76fde4da-f5d8-11e2-8388-00144feabdc0.html#axzz2eWB8Fim4>>.