Look Who's Strutting Now

10/01/2009 3:28 pm EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

No more pitying poor Europe. Financial pros have long dismissed it as a has-been, an Atlantis drowning in dodgy debt. Who'd expect anything from this cradle of socialism and the welfare state; this perpetually bickering confederation of meddlesome giants and nettlesome midgets? Asia and Latin America had the growth and the foreign reserves. The US had the accommodative, proactive Federal Reserve. Plodding, illiquid Europe had all the appeal of a Susan Boyle, minus the makeover and the pretty voice.

And as with Boyle, Europe's frumpiness finally paid off. Most continental stock markets have climbed 20% or more since the end of June, gaining ground on the likes of China, India, and Brazil. Low valuations and stable cash flows attracted money managers playing catch-up. It didn't hurt that European consumers never quite consumed as conspicuously as Americans, lost less income last year, and so scrimped less. And it certainly helped that many of the best European companies have been focusing on other continents for years.

The credit crunch stopped in the nick of time for many European borrowers and lenders. Hungary, Turkey, and Russia—three credit-sensitive stock markets on Europe's periphery—rallied 36%, 29%, and 25%, respectively, over the last three months. European banks bid half-heartedly for cheap loans from the European Central Bank this week, suggesting they're a lot less strapped.

There's been political ferment as well, and at the margin it's been bullish. German Chancellor Angela Merkel won a new mandate in Sunday's election, but the biggest winners were the small-business champions Free Democrats, who will replace Social Democrats as Merkel's coalition partners. They campaigned for drastic tax and spending cuts under the slogan "Germany can do better," and are now trying to push Merkel to the right.  

With Gordon Brown's lame duck Labour government in the UK now in third place in the polls, the Western European left is in disarray. Not that right-wing rule is any kind of a panacea, as the French and the Italians can attest.

Meanwhile China's celebrating 60 years of uninterrupted Communism, and though the regime has grown increasingly corporate, not everyone thinks it's such a happy occasion. But it's a fair bet that Steve Wynn does. The gambling tycoon's Wynn Resorts (NYSE: WYNN) has just raised a generous $1.6 billion in Hong Kong for a 25% stake in Wynn Macau.

The Chinese are everywhere these days, and when they're not lavishing billions on Las Vegas showmen they're reportedly muscling in on the oil action in Nigeria. Africa's resource riches and improving growth prospects make its stock markets a worthy gamble for risk-tolerant investors, writes Carlton Delfeld in this week's Global Perspectives.

Emerging markets guru Mark Mobius touts the merits of frontier markets as well in this week's Global Q&A, though he prefers Pakistan right now alongside Russia. Mobius remains most heavily invested in China and Brazil, and remains bullish on emerging markets overall for as long as the US and China continue to pump up the money supply.

And coincidentally, here's the one-year stock chart of Baidu.com (Nasdaq: BIDU), the "Chinese Google" that could scale new highs once the recent basing action runs its course, according to Timothy Lutts.

More value-minded investors could opt for the shares of Canadian waste hauler IESI-BFC (TSX: BIN, NYSE: BIN), which got trashed in the wake of last year's dividend cut. The business remains profitable and largely recession-proof, writes Gavin Graham. The company's predominantly Canadian routes could deliver an extra profit kick should the US dollar continue dumpster diving.

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