Home etftrends.com Budding Bull Case for Europe Stocks

Budding Bull Case for Europe Stocks

Somewhat quietly, European stocks, though still lagging U.S. equivalents, are turning in some impressive showings this year. The MSCI Europe Index is higher by about 7% year to date.

Some benchmarks and ETFs dedicated to European equities are far exceeding that performance. That indicates compelling opportunities on a continent that’s long frustrated U.S. investors. For example, the WisdomTree Europe Hedged Equity Fund (HEDJ) isn’t far off the pace set by the S&P 500 this year.

After a lengthy run of underperformance relative to U.S. stocks, Europe equities are perking up. Some indexes tracking the region are sporting impressive gains over the past 30-90 days. Many retail investors remain focused on domestic stocks, particularly glamorous growth fare. But some professional market participants are waking up to Europe’s bull case. That could stir fresh interest in HEDJ.

Europe ETF HEDJ Ready for Its Close-Up

For advisors and investors considering HEDJ, it’s worth noting that professional sentiment regarding Europe equities is improving. Consider the following.

“We have high conviction in our constructive European equities view. [We] have recently raised our one year forward MSCI Europe Index target to 2,500 – 18 percent potential upside. This brings potential total return upside – if we incorporate dividends and buybacks – to 23 percent,” noted Marina Zavolock, Morgan Stanley’s chief European equity strategist.

Catalysts abound for Europe stocks and HEDJ, and one is simple though potent. MSCI Europe Index members,  some of which are also HEDJ holdings, should grow EPS at an impressive rate this year.

“Our earnings model projects 7.5 percent earnings growth by year end for MSCI Europe. [That] is almost double consensus estimates. On top of this, we think the market underappreciates a number of significant thematic tailwinds that benefit European equities,” she wrote. “These include rising corporate confidence, an M&A cycle recovery that is leading the global trend, an imminent start to rate cuts, high and rising capital distributions including buybacks, and underappreciated AI diffusion.”

ECB Rate Cuts Would Likely Benefit HEDJ

Potential rate cuts by ECB would likely benefit the currency-hedged HEDJ. Should the ECB cut rates, lower rates would likely weaken the euro against the dollar. And that would potentially provide ballast to HEDJ. That scenario could be amplified amid dwindling odds that the Federal Reserve will cut rates over the near term.

At the sector level, Zavolock extolled a preference for European financial, healthcare, and industrial names. Those sectors combine for more than 41% of the HEDJ roster.

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