As France and Greece change governments the return to socialism in Europe drives stocks down. The election of governments opposed to necessary Euro Zone austerity measures casts doubt on the long term Euro Zone investment outlook . Over the last three years officials in the European Union have forged a consensus as to how to handle potential debt defaults by Greece, Portugal, Spain, Ireland, and Italy. The consensus included severe austerity measures and huge loans to prop up ailing governments and the banks who had loaned them money. Along the way there were riots in Greece as pensions and health benefits were cut. Spain finds itself with a twenty-five percent unemployment rate. The consensus of voters in Greece and France was that Socialist governments would be willing to stimulate their economies, bring back jobs, and generate the cash to pay off debt along the way. As a return to Socialism in Europe drives stocks down it as apparent that investors and traders are voting with their money and the uncertainly unsettles them.
While the return to Socialism in Europe drives stocks down Greek bank shares are taking a hit as well. Fundamental analysis is crucial to successful investment and the fundamentals are uncertain now in Europe as the return to Socialism drives stocks down. A resumption of the level of uncertainty that reigned in Europe over the last couple of years could well affect the global economy. Exports are already down in China as Europe’s economy weakens. Weakened European banks are doing less business in Asia and credit for global trade is harder to get in Asia. Although United States manufacturing is in its 35 th month of expansion the growth of jobs in the USA is slowing to a point where it is barely keeping up with population growth and not replacing jobs lost in the Great Recession that started in 2008. As the return to Socialism in Europe drives stocks down, investors are looking for bright spots in the global economy and save havens in case of another economic downturn.
We wrote recently about the best places on earth to invest . Currently investors do not include the Euro Zone on that list. However, if one believes in the so called “blood in the streets” approach to investing, there are probably some great stocks in the Euro Zone that are unjustifiably down in price. Picking new winners always requires a bit of foresight and the ability to tune out the static of day to day worries and focus on the long term. As a return to Socialism in Europe drives stocks down the Euro is suffering as well. Remember that companies based in Europe that export across the globe will, in fact, benefit from a cheaper Euro. As China seeks to make the Yuan a reserve currency they will need to let it float and probably rise with the market. With a cheaper Euro and a more expensive Yuan, European industry could profit from increased sales to China and other Asian nations. As always we are not suggesting that one invest in European stocks or avoid them. The point is to think through investment opportunities in search of profits.