Newspaper article Evansville Courier & Press (2007-Current)

Buying Cheap in Europe Carries Serious Risk

Newspaper article Evansville Courier & Press (2007-Current)

Buying Cheap in Europe Carries Serious Risk

Article excerpt

NEW YORK - It often pays to zig when everybody else zags. If you were brave enough to put cash into the stock market three years ago- and very few small investors were - you've doubled your money. European stocks have lost about 15 percent since mid-March. Renewed worries about the region's long-running debt crisis have rattled markets. So it might look like a chance to buy cheap.

The trouble, money managers say, is that nobody knows when the crisis there will end. Most of them predict it will get worse, perhaps far worse, before it gets better.

"You can't pick the bottom," says Martin Jansen, lead manager for international equities at ING Investment Management U.S. "And if things get worse in Europe, today's cheap won't look so cheap anymore."

To hear Jansen and other money managers tell it, a rule for shopping applies for investing: Not everything that goes on sale is a bargain.

If Greece drops out of the 17-country euro currency group this year, as analysts worry it will, it could spread havoc throughout the financial system. And Europe's underlying problems - slumping economies, deep debt burdens and ever-rising interest rates - could take years to fix.

That doesn't mean it's time to sell everything connected to Europe. The best approach, fund managers say, is to divide the continent into struggling and stronger countries.

Investors who take this approach keep clear of Greek banks but favor German giants. All European markets could get hammered in a panic, but stocks in the stronger countries stand a better chance of bouncing back months, or maybe years, later.

"Put it this way: Are European markets a screaming buy?" Jansen says. "No, right now it's time to be cautious, time to be selective."

Some questions and answers

Q: Which European countries are in better shape?

Among the 17 countries that use the euro currency, Germany is an outlier. It has the largest economy in Europe and the fourth- largest in the world. But it's not just Germany's size that sets it apart. Key measures of the German economy make it look as if the country broke away from the continent.

Unemployment across the euro countries has hit 10.9 percent, with Spain and Greece above 20 percent. Eight of them are in recession. Borrowing costs for deeply indebted countries hover near what economists consider unsustainable levels. Spain and Italy have to pay slightly less than 6 percent to borrow for 10 years.

By contrast, Germany's unemployment rate is 6.8 percent. Economists expect the economy to expand nearly 1 percent this year. And Germany is a bond-market darling, borrowing for 10 years at just 1.5 percent.

Sean Lynch, Wells Fargo's global investment strategist, says his firm is leery of European stocks, except when it comes to Germany.

"We need to stop thinking of Europe as one entity," Lynch says. …

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