Investing in Post-Brexit Europe

08/23/2016 10:00 am EST


Yiannis Mostrous

Editor, The Capitalist Times

By and large, equity indexes have treated the UK’s vote to exit the EU as a non-event; however, investors should remain cautious and allocate their capital selectively, explains Yiannis Mostrous, editor of Capitalist Times.

The lackluster economic recovery means that Uncertainty about the political and economic consequences of the UK exiting the EU likewise ratchets up the risk over the next few years.

In the UK, investors should continue to favor companies that generate a significant proportion of their revenue outside Britain and stand to benefit from further weakness in the pound.
Deutsche X-trackers MSCI United Kingdom Hedged Equity (DBUK) is perhaps the easiest way for investors to pursue this strategy.

This investment vehicle provides exposure to UK equities while mitigating the effect of fluctuations in the US dollar-British pound exchange rate.

The fund distributes its net realized gains, if there are any, to shareholders every six months. Deutsche X-trackers MSCI United Kingdom Hedged Equity rates a buy up to $25 per share.

ING Groep (ING), and Siemens (Frankfurt: SIE) remain our favorite Continental stocks.

ING has almost completed a comprehensive restructuring that aims to simplify its operations and refocus on the company’s core strengths.

The most significant portion of this process involves the divestment of the company’s insurance business and the consequent distribution of its value to shareholders.

ING boasts a solid capital position and a well-diversified retail and commercial banking franchise in key European markets.

The stock also sports a dividend yield of 8.6 percent, more than 40 percent higher than the average for Continental banks. ING Groep’s American depositary receipt (ADR) rates a buy up to $15.

Siemens (Frankfurt: SIE) is one of the world’s largest industrial conglomerates. It focuses on power generation, health care, industrials, and infrastructure.

Despite the fragile global economy, the company continues to report solid revenue growth, primarily because of strength in its electricity and wind-power business lines.

Siemens has also started to benefit from ongoing efforts to reduce costs, a push that should help to bolster its margins.We like the stock as a long-term holding because of management’s commitment to returning capital to shareholders.

Yielding 3.6 percent, Siemens’ locally traded shares rate a buy up to EUR100. Investors should consider easing into this position to take advantage of any future pullbacks.

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