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European Stock Market Looks Stronger – But Don't Be Fooled

Stock-Markets / Stock Markets 2013 Aug 12, 2013 - 12:27 PM GMT

By: Money_Morning


Tara Clarke writes: A few economic reports over the past two weeks have fueled optimism that a Eurozone recovery will trigger bullish performance in the European stock market.
abb euro market

The German Economy Ministry released a report on Friday saying that economic activity has increased notably in Q2, supported by both private consumption and investment in building construction.

Last week, the Purchasing Managers Index (PMI) report for July, which surveys around 3,000 firms, came out to 50.3 points, up from an initial estimate of 50.1 points. This marks the first time Eurozone manufacturing was above a 50-point boom-or-bust trajectory since July 2011. The PMI also showed that production was up for the first time since February 2012, and that job losses are being staved off.

British business activity actually climbed to 60.2 from June's 56.9, marking the fastest pace of expansion in the U.K. since 2006.

The Portuguese Q2 unemployment rate fell from 16.4% to 17.7%, its first decline in two years.

This data has triggered analyst reports that a Eurozone recovery will drive the European stock market higher. The Euro market has already climbed about 12% in the past six weeks.

But, don't be quick to start buying European equities...

Money Morning's Chief Investment Strategist Keith Fitz-Gerald, a 20-year seasoned market analyst and professional trader, has a different take on what's going on in Europe.

What's Really Going on in the European Stock Market

Fitz-Gerald says what's happening to the European stock market right now actually hits very close to home.

The Eurozone economics strikingly mirror the machinations of Bernanke and his Federal Reserve.

That means a rising European stock market is not indicative of economic strength, but instead of central bank disruptions.

"Money is still flowing to the East. Any resurgence in European trading is based on the same sort of financial meddling that's going on in the U.S.," explained Fitz-Gerald. "To the extent that the U.S. is a solid investing opportunity right now, the same holds true - the markets are being buoyed by central bank tinkering."

Editor's Note: For more on the Fed's rippling effect on the U.S. market, check out this must-read briefing, "Bernanke's Deal with the Devil: A Blueprint For Surviving The Coming Crash."

As for the positive PMI survey, Fitz-Gerald said "That's just more money flowing into German coffers. It's being made available courtesy of the central banks. Customers are beginning to respond to that, but it's too early to tell whether it's a sustainable trend," Fitz-Gerald notes.

Same goes with Germany's strong industrial report:

"It's too early to tell if it's a solid trend, but it is a step in the right direction. I'm not going to hold my breath," says Fitz-Gerald.

As far as making money from the European stock market rise, Fitz-Gerald said most of these opportunities are only for investors who are nimble, quick, and comfortable with short-term stocks.

Most long-term plays are suspect at best, according to Fitz-Gerald - unless they meet the following very specific criteria. In that case, as part of a carefully disciplined investment portfolio, companies like the following one are worth betting on...

The Only Way to Play the Rise in European Stocks

"If I were to invest in the European stock market, it would be on a speculative basis only, or - and this is important - in European countries with exposure to the faster-growing Asian economies and South America," said Fitz-Gerald. "I think any company that is doing business specifically in Europe in isolation is doomed to fail because of the global financial crisis ultimately coming home to roost."

A perfect example of a European company with fantastic global reach is ABB Ltd (NYSE ADR: ABB).

Its stock is trading today around $22.50, up 8% year-to-date.
abb euro market

ABB is a power and automation technology company based out of Zurich. It has the diversification and history of an established company.

"ABB has global reach, nearly 100 years of history in global markets, and is backed by $30 trillion in spending on global infrastructure over the next five years.

"Anything other than that is going to fall short for me," said Fitz-Gerald.

Fitz-Gerald delivered a more detailed analysis of ABB, along with two other choices for yield-starved investors, in this May 21 analysis. Get the full ABB story and the other picks here.

Source :

Money Morning/The Money Map Report

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