Is Europe getting better? In the past few days, there are some early signs that Europe may be bottoming. Consider:
First, after seeing mostly OUTFLOWS for the past year, there have been INFLOWS in the past several weeks into the two largest European exchange-traded funds (ETFs): Vanguard FTSE Europe (VGK) and iShares EMU (EZU). Matt Hougan at IndexUniverse notes that Developed Europe was one of the most popular segments in terms of inflows in July, with more than $1.3 billion in net new money flowing into broad-based European ETFs.
Second, European economic data has been improving recently. In the UK, for example, manufacturing, car sales, home prices, and retail sales have all shown improvement.
Third, company commentary on Europe is not as dire as previously, and some are reporting growth. Just today:
- Michael Kors (KORS) reported European sales up 144 percent, on total comparable-store sales up 56 percent;
- Fossil (FOSL) reported European net sales up 15 percent. The CEO said, "we continued to leverage the power of our brands and our distribution infrastructure to expand our international footprint, fueling robust revenue increases in both Europe and Asia."
- Emerson (EMR): "Growth is expected to continue in the near term, supported by solid residential and improving nonresidential demand in the U.S., and stabilization in Europe."
- Archer Daniels Midland (ADM) cited "stronger European results" in its refining, packaging, and bio-diesel business.
Here's the problem: a lot of people have been waiting for this "turnaround" for some time. Deutsche Bank says that Europe may have officially come out of recession in the last quarter. The Vanguard FTSE Europe (VGK), the largest European ETF in the U.S., is at a two-year high.
In other words, a significant number of people have already bought into the turnaround.
Does that mean Europe is not worth investing in? No. While the S&P 500 is essentially at an historic high, Europe is nowhere near it: the VGK, for example, is more than 30 percent the historic high it hit in 2007.