Is it time to sell European stocks? The European Community continues to have debt problems as ministers meet to consider the details of propping up Portugal whose national debt has become a dangerous burden. The PIIGS, namely Portugal, Ireland, Italy, Greece, and Spain, have been in the news for a year as their collective national debt and economic instability has required economic leaders in the EU to come up with cash to bail out their weaker members. The Euro has largely fallen on the news although European stocks have been on a rally. Now it may be time to sell European stocks as experts predict a fall in stock values throughout the continent. If you own European stocks and are going to sell European stocks just what criteria will you use? Certainly any company that does business exclusively in the EU will be at risk as both the Euro and the GDP of the EU could fall. On the other hand any European company whose business is largely offshore from Europe, such as in Asia, will likely continue to prosper even as things in the EU falter. Of course picking new winners in biotech or other new science can supersede current economic factors.
If one has bought Europeans stocks as American Depository Receipts then it can be easy to sell European stocks. Otherwise one will need to deal with a broker who deals with a European stock exchange. European stocks as measured by the Stoxx Europe 600 index have fallen roughly 4% this year while the Standard and Poors 500 in the USA has risen by the same percentage. Add the likelihood as stated by many that Greece will default on its debt despite economic assistance from other EU members and it may better to sell European stocks sooner rather than later. The current bull market is more than two years old and, from the technical aspect, is about how long bull markets have run in Europe in the last 25 years. Because of the fall of the Euro due to debt issues European companies have been able to compete more effectively in the export market. This will likely continue to be the case for strong exporters. Fundamental analysis of the stock in question is always of utmost importance. However, the likely continued fall of the Euro will be a drag on the value of companies whose business in mostly confined to the continent.
As with all stock investing there are ways to preserve opportunity while limiting losses. One of these is to buy puts on European stocks. If the stock in question remains strong the put will have functioned as insurance. If the stock falls in value the owner of the put option will be able to sell the stock at the contract price, the strike price, even if the market price or spot price has fallen substantially. This is a strategy often used at the end of a bull market and may be of value as investors wonder if it is indeed time to sell European stocks.