Bearish STOXX 600 Has Investors Creating New Strategies For 2022

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by valuewalk
Thursday, Mar 10, 2022 - 21:22

Investor sentiment has been somewhat divided in recent months, as global markets have underperformed expectations, trailing a bearish start to 2022 thus far.

The pan-European benchmark, the STOXX 600 has experienced almost a breakneck entry into 2022 as the tension between Russia and Ukraine are now being felt not just on the continent, but all across the world. These and other issues have now led experts to believe that the index is closing in on correction territory.

The European market has been receiving blows from every side in the last few months, as labor shortages and supply chain issues have started waning on the continent. After more than six months, some countries, including the leading powerhouse, Germany have finally reported economic growth after facing hardened lockdowns and travel restrictions since the rise of the omicron variant in November 2021.

The ongoing tension on the continent has now caused the price of Brent crude oil to reach its highest it’s been in more than five years as OECD countries are struggling to meet targeted demands, now investors are left cold, and somewhat hawkish.

Economic tension has spooked investors, and with further Fed rate hikes, investors are struggling to find appropriate places to garner good returns. Investors are becoming more worried over the current situation in Europe, which has seen them withdrawing their cash.

A report by Bloomberg indicated that around 36% of investment bank Goldman Sachs clients believe that European stocks will outperform in the coming year. On the contrary, 32% of clients feel that U.S. stocks will outperform, according to the same report.

Even if Goldman Sachs' prediction does see the STOXX 600 outperform in the coming year, investors and the market overreacted to news and media scrutiny, said Shark Tank CEO, Mark Cuban in an interview with Market Insider in February.

Yet, as uncertainty looms over current situations, investors are advised to make critical analysis before investing in any type of foreign indexes.

Here’s some reasons why a bearish STOXX 600 will have foreign investors creating new strategies for the upcoming year.

Slowing Economic Recovery

Economic recovery has been slowing in recent months, as the Eurozone experienced a 0.3% fourth-quarter growth, a decline from 2.2% in quarter three. However, major European economies have been able to bounce back, gaining traction to hit pre-pandemic GDP growth.

While the European picture looks promising, zooming in on smaller economies revealed some struggle to catch up to pre-crisis levels. Austria has been hit the hardest, seeing its GDP shrink by 2.2% in the fourth quarter of 2021. On the other hand, Greece fell by 9.0% in 2020 but regained economic growth of 8.0% in 2021.

Slow economic rebound has remained a strong headwind against foreign investors looking to tap into the pan-European index markets. However, although sentiment may reveal a positive side, investors are still somewhat reluctant.

ECB Monetary Policies

President of the European Central Bank, Christine Lagarde has laid claim earlier in the year that there is not yet any indication of rate hikes for either the first and second quarter of 2022.

While the ECB and Lagarde have claimed that there will be no tightening monetary policies for the Eurozone in 2022, which means inflation will stabilize at 2%. Some are also concerned about the ECB ending their stimulus program earlier than planned. This has led some experts, such as Klaas Knot, the Dutch Central Bank president, to expect a hike in the fourth quarter of 2022.

Yet, as the ECB and council members try to stabilize the continent's economy while keeping chatter around new monetary policies off the table, for now, investors aren’t quickly warming up to the idea that a sudden hike will be beneficial to their foreign investments.

Creating New Strategies For The Year Ahead

With the worrying signs, and investors on high alert, perhaps moving away from the current stock market or smaller accounts should become a more considerable option. These methods can offer better security for investors as they’re looking for innovative ways to ride out current turbulence.

European Dividend Aristocrats

These companies provide some of the best short term yields, and offer the best combination of risk and growth during turbulent times. A domicile of these companies have become attractive players in the game, putting high returns at center stage for investors.

A look at these companies reveals a variety of sector and industry-specialists that offer stock and share purchases for investors who are looking for companies that can offer growing opportunities, even as current tensions have caused market volatility to escalate in recent months.

Several of these aristocratis include Givaudan, UCB, Experian, Ashtead Group, Enagas and British American Tobacco, among others. The short list here gives investors a footing on a variety of industries, including consumables, luxury goods, insurance, energy and gas, and biopharma.

You will, of course, need to work via a brokerage firm that will assist you in executing the trades. From there on, the brokerage firm will oversee transactions and exchange of currencies and communicate the necessary procedures.

American Depository Receipts

ADR is one of the most popular and untapped ways to invest in the European stock market. These stocks are sponsored mainly by the foreign company, where the depository bank will purchase a large portion of foreign stocks.

The bank then operates that interest from domestic investors will help turn these stocks into lucrative investments and generate a fee from the offering.

Investors can buy directly from the depository bank or other larger financial institutions. Domestic investors can buy and sell these stocks just as they would’ve with other markets.

Online Trading and Robo-advisors

Trading platforms such as RoboMarkets have become more valuable in recent times, opening foreign investments to nearly every person worldwide. It’s given them the chance to experience firsthand how foreign stock markets work and assist them with the right tools and resources.

These platforms offer a secure way for investors to tap into foreign markets such as the STOXX 600. In addition, there is a wide range of indices from which investors can choose, including metals, stocks, and commodities.

In Summary

Despite the clout that the EU has experienced in recent months, and within the first few weeks of 2022, there remains a cheerful face to each side of the story. The European markets have been gaining more traction, even as different factors such as labor shortages and geopolitical issues loom overhead.

While investors may still be left with cold feet over whether a foreign investment into the STOXX 600 will be lucrative, various remaining factors should be carefully calculated.

The pan-European market remains a substantial threshold for investors willing to take a significant risk in 2022. As stocks move in various directions between the U.S. and Europe, investors should consider where they could win and their losses.

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