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Thursday, June 24, 2021

Time to Buy the Dip in Europe ETFs?

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Euro zone may see some solid economic recovery in the near term. At least, China’s export data signals the same. China’s exports rose the most in nearly 1-1/2 years in August, in a sign that more of its trading partners — such as the Euro zone — are reopening their economies and have been reporting better activities, per Reuters. Industrial production in Eurozone’s main economy — Germany — also rose 1.2% (read: Euro/Dollar Parity at Two-Year High: ETFs to Gain/Lose).

The Euro/U.S. dollar strength has also been prevalent lately with the euro breaking above $1.20 for the first time in more than two years. The strength of the euro can be attributed to the key pandemic deal. After a tough negotiation, European Union leaders agreed on a massive stimulus plan in July for their coronavirus-shattered economies in one of the longest EU summits in history.

At the meeting, the leaders agreed to distribute 390 billion euros, out of total 750 billion funds, in the form of grants — down from an initial proposal made by France and Germany in May for 500 billion euros of grants. The EU agreed to repay all the new debt by 2058. Meanwhile, member states will also have to come up with plans on how the new funds will be invested (read: Bet on Europe ETFs After a Key Pandemic Deal).

“Even if industrial production remains unchanged for the next two months, the quarterly growth rate would still be around 10%. This illustrates that a strong rebound in the German economy is in the making,” said Carsten Brzeski, ING’s chief economist for the Euro zone, as quoted on Reuters.

Moreover, the ECB restarted QE from November 2019 and has a negative interest in place. In April, finance ministers had already approved a 540-billion-euro package of short-term fiscal stimulus. Plus, the individual governments announced their individual economic stimulus packages (read: ETFs to Gain on ECB’s Coronavirus Emergency Stimulus Rollout).

Along with better economic activities, vaccine hopes may act as another tailwind in the stock market rally. Against this backdrop, below we highlight a few Europe ETFs that could stand to gain in the coming days.

iShares MSCI Germany Small-Cap ETF EWGS

Since a stronger currency and better economic activities are good for small-cap stocks that are domestically exposed and have lesser dependence on exports, this small-cap Germany ETF should be a gainer.

First Trust Germany AlphaDEX ETF (FGM)

The underlying NASDAQ AlphaDEX Germany Index employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ Germany Index. It charges 80 bps in fees.

iShares MSCI United Kingdom SmallCap ETF EWUS

The underlying MSCI United Kingdom Small Cap Index measures the performance of equity securities of small-capitalization companies whose market capitalization represents the bottom 14% of the British securities market. Component companies include consumer discretionary, financial and industrial companies. It charges 59 bps in fees.

SPDR EURO STOXX Small Cap (NYSE:SMEZ) ETF SMEZ

The underlying EURO STOXX Small Index is designed to provide a representation of small companies across the Eurozone. It consists of the Eurozone stocks included on the STOXX Europe Small 200 Index. The fund charges 45 bps in fees.

Franklin FTSE France ETF FLFR

The underlying FTSE France RIC Capped Index is a market-capitalization weighted index representing the performance of French large and mid-capitalization stocks. The fund charges 9 bps in fees.

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iShares MSCI United Kingdom SmallCap ETF (EWUS): ETF Research Reports

iShares MSCI Germany SmallCap ETF (EWGS): ETF Research Reports

First Trust Germany AlphaDEX ETF (FGM): ETF Research Reports

Franklin FTSE France ETF (FLFR): ETF Research Reports

SPDR EURO STOXX Small Cap ETF (SMEZ): ETF Research Reports

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