Across Europe, we think structural change is leading to increasingly compelling opportunities for investors.
Consolidation among French telecoms, for example, has curtailed what had long been fierce industry competition and has greatly enhanced the return potential of a smaller number of key players.
Ireland is recovering Similarly, Irish banking has undergone a process of consolidation that enhances the return potential of a smaller group of lending institutions, particularly those who are positioned to benefit from improvements in the domestic commercial real estate market. Overall, gross domestic product in Ireland has not only stabilized but has increased meaningfully since the financial crisis. The government has been quite aggressive in tackling its debt and deficit problems, and real estate prices are recovering. To us, this bodes well for further gains as valuations normalize in the financials and real estate sectors.
The euro may stabilize Some estimates for 2015, for example, suggest that in local currency terms, European equities may rise by double digits for the year. However, euro weakness relative to the U.S. dollar could roughly halve the value of that return when it is translated back into dollars.
It is worth pointing out, though, that the euro, not to mention the yen, has already depreciated substantially relative to the U.S. dollar, and so going forward international investors might not experience such a dramatic adjustment in return translation. At the same time, corporate earnings of international companies in 2015 are likely to benefit from the year-on-year change in currency values.
For informational purposes only. Not an investment recommendation.
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Diversification does not guarantee a profit or ensure against loss. It is possible to lose money in a diversified portfolio.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Bond investments are subject to interest-rate risk, which means the prices of the fund’s bond investments are likely to fall if interest rates rise. Bond investments also are subject to credit risk, which is the risk that the issuer of the bond may default on payment of interest or principal. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds, which may be considered speculative. Unlike bonds, funds that invest in bonds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. Commodities involve the risks of changes in market, political, regulatory, and natural conditions. You can lose money by investing in a mutual fund.
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