This could be the year of the eurozone -- in a good way, for a change. The single-currency area is digging itself out of the hole and the process could accelerate in 2016 if there are no unforeseen events.
Having said that, Europeans are experts at creating crises -- remember that Spain and Portugal still have hung parliaments following elections last year -- so anything is possible. However, the best-performing stock market last year was Denmark, up 25% in the second consecutive year it took the crown, followed by Belgium, up 15%, according to data from equity analysts at HSBC.
The HSBC strategists are overweight eurozone equities and underweight U.S. stocks, arguing that the European Central Bank's asset-purchasing policy will help the euro area's economy this year, while the Fed's rate increase is a headwind for the U.S. economy and therefore for Wall Street.
The most recent data reinforce this view. Italy's manufacturing PMI came in at a 57-month high of 55.6 in December. Italy's performance was followed by Ireland, with a manufacturing PMI of 54.2 and the Netherlands, with 53.4. Even Greece experienced manufacturing expansion, with the PMI at 50.9 in December, a 19-month high.
Another reason why investors should at least think about getting exposure to the eurozone is the fact that, unlike the U.S. or the U.K. stock markets, stock indices in Europe are generally not burdened by big oil or commodities companies dragging them down.
U.S. investors looking to access a mix of big-cap European stocks can do so via the SPDR EURO STOXX 50 ETF (FEZ), while those who prefer a mix of mid- and big-caps could look at the iShares MSCI Eurozone ETF (EZU).
Unlike in the U.S., where the fall in the price of oil has hurt many companies in the shale sector, there have not been many corporate victims yet in the eurozone. On the contrary, eurozone consumers are expected to welcome the boost in disposable income that lower energy prices bring by opening their wallets, which could see some interesting investing opportunities in the consumer-goods sector.
In the Netherlands, personal products maker Unilever (UN) is worth a closer look; its stock has advanced by more than 12% over the past year and is currently trading on a forward PE ratio of 19, having pulled back by around 3% over the past week. Another stock to watch in that sector is also from the Netherlands; electronic goods maker Philips (PHG), on a forward PE of around 17, is trading at $24.56 via its ADR listed on the NYSE, vs. a mean price target of analysts of around $31.50, as quoted on Finviz.com.
A weaker euro due to the ECB's monetary easing and the contrasting tightening policy by the Fed will help many companies in the eurozone. Analysts at Societe Generale highlight hotelier Accor (ACCYY), carmaker Renault (RNLSY) and pharmaceutical company Sanofi (SNY) among the main beneficiaries of a weaker currency.
Eurozone stocks have wobbled together with Chinese and global stock exchanges at the start of the year, but many signs point to them rising this year. And despite disappointment at ECB head Mario Draghi's less-dovish-than-expected stance in December, the reality is that inflation is still so low in Europe that more monetary stimulus is very likely.
