Mike Norman: European Vacation

07/11/2003 12:00 am EST

Focus:

Michael Norman

Publisher, Economic Contrarian Update

Mike Norman, editor of The Economic Contrarian monitors media commentary to assess general opinions regarding financial markets. He then takes positions opposite to the consensus. Due to excessive media optimism he is cautious on domestic tech stocks and Japan. Europe, however, is a buy.

"Our Contrarian Indices are based on market commentary in the media. High positive readings mean that there are lots of bullish news stories, headlines, and commentary. Contrarians go short when readings are positive. Negative readings mean that there is a preponderance of bearish headlines, news, and commentary. Usually, that is a good time to go long.

"My Contrarian Index for the Tech Sector registered a single-day record for bullish commentary in the media yesterday. That is bearish, at least short term. As a result, I would be locking in some tech stock profits (yet staying in the market with a core position). In addition, take some profits in Japan, where the bullish commentary has been blowing through the roof. I still think the Japanese rally is intact long-term, but I want to cut my exposure at this juncture now that everyone is turning bullish. 

"
In my view it is time to shift some money to Europe, where the sentiment picture is very attractive. Europe is lagging both the US and Japan, but it will start to catch up as the correction in the euro continues.Despite near term strength in the euro, I think it is going lower--quite a bit lower. France, Germany, and the rest of Europe continue to struggle economically because of the constraints imposed by monetary union. A weaker currency is the only way that European economic activity can stabilize and grow, as meaningful reforms are not going to happen (they are too politically perilous), and because the European Central Bank is too cautious. The fall in the euro is obviously good news for European stock markets, and European stocks should be great performers in the second half of the year thanks to this currency adjustment.

"To invest in European shares, we suggest using exchange-traded funds (ETFs replicate the performance of a specific index or basket of stocks). We recommend the iShares MSCI France index (EWQ ASE). Politics aside, the French market is highly undervalued. We also recommend the iShares MSCI Germany index (EWG ASE), the iShares MSCI Italy index (EWI ASE), and the iShares MSCI Netherlands index (EWN ASE ). We would also note that one easy way to play these trends is by purchasing iShares Europe (EZU NYSE)."

Related Articles on