Health Of Euro Zone Recovers: ETFs To Watch

The Eurozone is showing signs of a speedy recovery as evident from the four-and-a-half year high expansion in its business activity for the month of November. According to a flash estimate by data firm Markit, the Eurozone purchasing managers’ index inched up to 54.4 this month from 53.9 in October. This surpassed the threshold score of 50 which hints at an expansion in activity.

The growth profile weakened in recent times in the Eurozone, failing rounds of monetary easing. The bloc recorded 0.3% growth in Q3, declining from a 0.4% rise in Q2 and falling short of market expectation. The growth rate in Q3 was the softest in a year as development cooled down in the Eurozone’s heavyweights, Germany and Italy.

In such a backdrop, the news of fast expanding business activity spread optimism among investors. New business growth was noticed in both service and manufacturing sectors. Germany turned up a super performer as companies experienced ‘their strongest monthly gains in new business orders for two years.

The boost has come at an opportune moment when the ECB is mulling over further easing in policies to boost inflation and economic growth.The European Central Bank (ECB) president Mario Draghi reassured of a more intensified and protracted QE measure, if need be. He reaffirmed the evaluation of the monetary policy by the end of this year based on a volley of economic data.

However, the latest upbeat data raises confusion over the ECB’s potential altruism in the December meeting forcing some to believe that further easing may not be as generous as thought previously. But a stubbornly low inflation profile thanks to the commodity market rout gives all reasons to expect further monetary easing from the ECB.

Overall, the chief economist at Markit indicated that the Eurozone was “on course for one of its best quarterly performances over the past four-and-a-half years.” Based on this data, he expects the Euro bloc to post 0.4% economic growth in the final quarter of the year. Meanwhile, Greece received a bailout loan from the Euro-area member states as the former agreed to enact the stated austerity measures.

ETFs to Watch

Below we highlight three European ETFs that could be tapped to play the latest uptick in business sentiments. To do this, we land up on currency-hedged ETFs as this is the most-watched investing technique currently thanks to opposing monetary policies in the U.S. and the Eurozone. While the greenback is strengthening on a looming rate hike in the U.S., euro is sliding on accommodative policies by the ECB (read: Guide to Currency Hedging ETFs).

WisdomTree Germany Hedged Equity Fund (DXGE)

Since Germany was the main driver of the latest surge in business activity, Germany ETFs warrant a look. This German ETF holds 75 securities in its basket. It has a slight tilt toward the consumer discretionary sector with 21.7% share, followed by double-digit exposure each in financials, industrials, materials, and healthcare.

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