Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21
S&P 500 Rallies To New All-Time Highs – Are The Markets About To Break Higher? - 5th Sep 21
Bond Conundrum - Boom or Bust for Gold? - 5th Sep 21
How the sale of a Sting CD sparked an Entire Online Industry - 5th Sep 21
Three Years of Fresh Thinking With Scott Dylan and Dave Antrobus - 5th Sep 21
Bitcoin Bear Market Trend Forecast 2021 and Model Crypto Portfolio Buying Levels - 4th Sep 21
The Most Actively Traded Companies on the Toronto Stock Exchange - 4th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How Investors Can Profit from European Election Results

Stock-Markets / European Stock Markets Jun 09, 2009 - 04:24 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleMartin Hutchinson writes: The European election result has been met with little interest in the United States; for one thing, the plethora of parties from 27 different countries makes it almost incomprehensible. Yet it continued a long-term, very important trend, which should be hugely interesting to international investors.


You see, the longstanding attitude toward Europe - that it is an anti-free-market continent that should be of little interest to investors - is wrong; for the last couple of decades, it has been becoming more free-market-oriented, coming closer to the U.S. economic system.

You can see this more clearly by examining the last four European elections – 1994, 1999, 2004 and 2009 – which have taken place over a period of rapid EU expansion, from 12 countries in 1994 to 27 now. To get a better feel for the trend, you need to classify the various EU parties and their alliances into three broad groupings:

  • Group I: Socialist/Green - believing in strong state control over the economy, whether for political or environmental reasons.
  • Group II: Center-right - often nationalist, but believing generally in a free-market economy, although generally with greater government involvement and more welfare payments than in the United States, and finally.
  • Group III: Centrist/Other - either small center parties holding the balance of power in domestic parliaments or the inevitable residue of the unclassifiable.

Thus, the British Conservatives and German Christian Democrats fall in Group II, as would some smaller parties, like the British U.K. Independence Party and the Swedish Pirate party (which is a small libertarian anti-copyright outfit). The British Labor party, the French Socialists, various hard-left parties and the Greens fall into Group I. The British Liberal Democrats, the German Free Democrats and such economically un-definable parties as the British National Party fall into Group III. This gives anomalies - the German Free Democrats are highly free-market-oriented, for example - but most of them are fairly small and should cancel out.

Then since 1994, EU elections have shown the following trend:

  • 1994: 12 countries. Socialist Group I parties 249 seats of 567, 44%, Group II 40%, Group III 16%.
  • 1999: 15 countries. Socialist Group 1 parties 270 of 626, 43%, Group II 45%, Group III 12%.
  • 2004: 25 countries. Socialist Group I parties 283 of 732, 39%, Group II 45%, Group III 16%.
  • 2009: 27 countries. Socialist Group I parties 243 of 736, 33%, Group II 45%, Group III 22%.

You can see the trend. The Socialist/Green contingent has declined considerably from 44% of the total to 33%, while the Center-Right has increased moderately, from 40% to 45% (the Group III - liberals and miscellaneous - is a bit overstated for 2009, because many of the small parties haven’t yet sorted out which European grouping they will align with). Individual countries swing left and right, as in the United States, but there are enough countries in the EU for these swings to cancel out, leaving only a steady movement towards the Center-right.

One of the causes of this movement is the expansion of the EU - with the exception of the Scandinavian countries, which entered in 1995, most of the new countries are former members of the communist bloc, with an aversion to many aspects of government control. Nevertheless, it’s completely consistent across all four elections, not a temporary mood swing. What’s more, it’s substantial enough to make a big difference in EU policymaking, taking it strongly in the direction of free markets, if not necessarily in the direction of smaller government. A coalition majority sufficient to push through legislation would have been socialist-dominated in 1994; it would now be center-right-dominated.

Investors would do well to bear this trend in mind. Productivity growth has been generally slower in Western Europe than in the United States - but not much slower. In Eastern Europe, however, productivity growth has run at East Asian levels of 5% per annum or more, as the generally excellent education systems and heavy foreign investment of those countries has allowed them to catch up with the rich West. Overall, it’s likely that European productivity growth will speed up in years ahead, translating into faster growth in the overall economy, as EU policymakers remove additional trade barriers and pursue reforms that are modestly free-market in focus.

In the United States, meanwhile, the Barack Obama administration looks likely to substantially increase the government’s share of gross domestic product (GDP), taking the U.S. economic picture much closer to that of Europe. That may cause U.S. productivity growth to slow to European levels. Of course, as investors we would pay more for an increasing productivity growth trend than a declining one - which is why it is strange that most Price/Earnings (P/E) ratios in the EU are below the 13.6 average of the U.S. Standard & Poor’s 500 Index.

To celebrate the EU election result - or to position yourself for the region’s favorable prospects - you might look at the Vanguard European ETF (NYSE: VGK), which tracks the Morgan Stanley Capital International Europe Index. With net assets of $1.54 billion and a Price/Earnings Ratio of 8.2, it’s a way to get into a huge market on a bargain basis.

[Editor's Note:When the journalistic sleuths at Slate magazine recently set out to identify the stock-market guru who correctly predicted how far U.S. stocks would fall because of the global financial crisis, the respected "e-zine" concluded it was Martin Hutchinson who "called" the market bottom.

That discovery was no surprise to the readers of Money Morning - after all, Hutchinson has made a bevy of such savvy predictions since this publication was launched. Hutchinson warned investors about the evils of credit default swaps six months before the complex derivatives KO'd insurer American International Group Inc. He predicted the record run that gold made last year - back in 2007. Then, last fall - as Slate discovered - Hutchinson "called" the market bottom.

Now investors face an unpredictable stock market that's back-dropped by an uncertain economy. No matter. Hutchinson has developed a strategy that's tailor-made for such a directionless market, and that shows investors how to invest their way to "Permanent Wealth" using high-yielding dividend stocks, as well as gold. Just click here to find out about this strategy - or Hutchinson's new service, The Permanent Wealth Investor.]

Money Morning/The Money Map Report

©2009 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in