Don't Bet Against Europe

04/29/2010 10:34 am EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

Europe’s a fractious and debt-plagued lot for sure, but is it big and bad enough to scare up enough dips for all the dip buyers out there?

That’s not the question anyone was asking Tuesday, when credit downgrades of Greece and Portugal shook debt and equity markets around the globe.

Assets as diverse as Indian rupee, Russian bonds, and Brent crude paid the price for the sudden spike in risk aversion.

There was renewed hand-wringing over the European Union’s survival as an economic bloc and gnashing of gums (the teeth are long gone) over the likelihood that the year-long stock rally might be done. Another, less severe conniption struck the next day after Standard & Poor’s poor-mouthed Spain as well. Its troubles are no different from those of Portugal and Greece: too much debt, too little growth, too few jobs, and too many civil servants.    

The Germans, who have approached Greece with all the affection that a skinflint might bestow on a panhandler who just won’t go away, have finally been scared into action. There’s likely to be a bailout summit on May 10th, the day after a regional election crucial to Germany’s center-right government.

For Europe’s over-borrowed fringe, the heavy international aid will come at a cost of job losses and budget cuts. And precisely because of that, the crisis just might prove the best thing to have happened to Europe in quite a while. To have the Socialist leaders of Spain, Portugal, and Greece push in earnest for reduced entitlements and greater labor-market flexibility marks a major shift in politics on the continent. The notions that everything is fine, that the financial crisis was imported wholesale from the US, have been put to rest. Overdue reforms are in the cards.

Sluggish growth at home has long ago forced many European multinationals to invest heavily in emerging markets. If their affluent, highly skilled home bases manage to jump-start themselves, look out. Those who write off the investments on the continent based on political stereotypes are liable to miss out. Europe is amazingly resilient and has come back strong from worse calamities.

And then there’s Canada, where the government owes a relative pittance, the average selling price of a home is 50% above that in the US, and banks are positively swimming in capital and profits. So much so that dividend increases are on tap, Tom Slee writes.

More intrepid treasure hunters may pursue a London-listed miner of African diamonds that’s recently struck it rich, according to John Snowden. Less glamorously, Paul Goodwin suggests a company that makes Chinese blenders and hair dryers hum.

These stocks are far from sure things. But they’re much better deals than bets on a Euro-catastrophe.

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