European vacations are in vogue once again… and that’s one more reason why European stocks have become more appealing than their U.S. counterparts.
Thanks to the weak euro (i.e., strong dollar), American tourists are flocking to the Old World. For the European economies, this is the beginning of some excellent news.
The influx of foreigners and their spending dollars, combined with more investment by foreign companies, means an uptick in demand for everything from goods and services to employment in the region. It may not be apparent overnight, and the Greek situation may still be the elephant in the room, but believe me, recovery is taking hold.
For sure, eurozone tourism is booming. I can tell you from recent firsthand observations that the “C” concourse gates at Dulles Airport dedicated to European destinations are packed, compared to the gates heading to points within the U.S.
More telling are the stories being relayed from social media sites like Facebook. From my own personal feed, not a day goes by without at least one “friend” posting pictures from Europe. This week I saw posts from Madrid, Barcelona, the Côte d’Azur and even side trips to Marrakesh from different people.
Admittedly, these observations are anecdotal, but they are corroborated by cold hard facts. Credit Suisse’s channel checks, for example, show double-digit increases in car rentals across many European countries.
Simply stated, Europe is in vogue. The last time it was this popular, anecdotally, was in 2002 when the euro first began circulating. At that time, it was trading below parity against the dollar at around $0.94 per euro. The dollar was so strong that it was no problem for me to spend a few days at the Hilton Amsterdam, where John Lennon and Yoko Ono spent their honeymoon and staged their “Bed-In for Peace” some three decades before.
But the cheap euro didn’t just provide a cheap vacation; it provided a free vacation… literally. As a part-time hobby at the time, I was dealing in Rolex watches. So I ended up buying a couple on that trip at prices that were 20% to 30% lower than those in North America. I was able to turn a nice little profit on them when I returned to the States. It was a nice way to pay for the trip!
But less than six years after I was buying discounted Rolex watches, the euro had appreciated by 50%, averaging $1.47 per euro in 2008. You didn’t see many Americans on the Champs-Élysées in those days. Today the euro is back down to $1.12, which means you could enjoy a week in France for little more than a week enjoying the France Pavilion at Epcot in Orlando!
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And the weak euro is stimulating not only tourism, but also many other facets of the eurozone economy.
In the past month, a survey of purchasing managers across the 19-country eurozone showed the best growth recorded since 2011. The purchasing managers’ index rose to 54.1, up from 53.6 in May and well above the level of 50 that marks an expansion in activity. It was the highest level in 49 months.
Both France and Germany, the top two economies in the region, showed stronger than expected growth. The region is on track for 2% growth in GDP by next year. Even Spain is showing signs of recovery despite its moribund housing market. The Spaniards are projecting growth to come in at 2.8% for the year, higher than most developed countries.
To be sure, the crisis in the eurozone is not over. But it is undeniable that the stimulus, both nongovernmental and governmental, is taking hold. A cheap currency, along with cheap oil prices and low interest rates, is contributing to Europe’s economic revival.
A Greek meltdown, if it occurs, would provide a great opportunity to jump into the region’s stock markets. But that opportunity may not present itself. So if you’re looking for future growth and diversification today, then you might want to dip your feet into the eurozone stocks now, and add to that position in the event of a crisis.
Anecdotal evidence may not be right all of the time. But, when it is backed up by numbers on the ground, you should pay attention to the opportunity at hand.
Good investing,
Karim Rahemtulla
For The Non-Dollar Report
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