Busy Timeline For 2017 Eurozone ETFs

February 21, 2017

The eurozone is in the middle of a political upheaval. Faced with several crucial elections amid a brewing wave of populist ideas, and an ongoing banking crisis, portfolio managers have plenty to digest in 2017.

Risks abound, but that doesn’t mean exposure to Eurozone equities has been all bad. On the contrary, valuations are very attractive, according to Allianz Global Investors’ CIO Joerg de Vries-Hippen. Key economies have also shown some strength, he said, delivering ETF investors pretty good returns, particularly from a currency-hedged perspective.

Consider the 12-month returns of two eurozone-focused ETFs, the $7.6 billion iShares MSCI Eurozone ETF (EZU) and the $9.1 billion WisdomTree Europe Hedged Equity Fund (HEDJ)

Chart courtesy of StockCharts.com

According to Vries-Hippen, investors should return en masse to eurozone equities once the region goes through all of its elections, and the currency block comes out unscathed on the other side.

On the calendar, there’s plenty going on in the eurozone this year, and uncertainty is the only certainty for now. In a recent commentary, ETF issuer Rex Shares summarized the broad political picture best:

“Last year proved how difficult elections were to forecast, and elections in 2017 may prove no easier. Britain's vote to exit the EU in June 2016 and Donald Trump's election in November 2016 may both be behind us, but populist movements in Europe continue to gain momentum and call for drastic political change this year. While ultimately the stock market recovered from both these events in 2016, sustained political uncertainty in 2017 may precipitate quite a different outcome.”

Beyond election polls, there’s also the issue of fragile economies still reeling from a multiyear debt crisis. Here, think tank Stratfor offered the insight that, at the end of the day, fading investor confidence could hold the key:

“The debt crisis exposed the existence of a "doom loop" created by the tendency by European banks to hold their home government's debt. The vicious circle of the doom loop could start with markets losing faith in a government's ability to pay back debt, precipitating a selloff of its bonds. The resulting drop in bond prices would hit the balance sheets of the banks that hold them, making them more likely to need a bailout from their government. This, in turn, could depress investor confidence further, leading to more selloffs that further damage the banks. Despite the danger those practices pose, eurozone regulators have yet to find a way to sever the loop.”

Here are some of the key political events taking place in Europe this year, and what the implications are for some of the projected outcomes:

 

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