# Investing in Europe



## the_apprentice (Jan 31, 2013)

Is anybody currently investing in Europe or at least thinking about it? Stocks are at an all time low, many lower than their IPO. Many say the risks outweigh the opportunities at the moment, but I'm curious as to what people think of investing in Europe. Have you invested before? Will you never invest in Europe? Are you playing the waiting game? All opinions are welcome.


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## james4beach (Nov 15, 2012)

Many of us invest in Europe through the standard MSCI EAFE index funds (which is nearly 60% Europe) Personally I am most bearish on Europe among all the regions I track (I would sooner buy the S&P 500 or TSX than Europe).

I think their banking system is an under-capitalized disaster, likely to implode within the next couple years. Horrible economic fundamentals, horrible employment situation, high banking sector risk, total reliance on ECB and government based assistance that is unsustainable. If it wasn't for the ECB and other special government buyers, there would be no buyers of much of Europe's debt. Europe has a very heavy debt load that most analysts say is unresolvable, without default. Portugal's benchmark government bond yield is over 7%, and Spain is near 5% -- these are just two of the unsustainable situations that will likely lead to country default, and then a cascading series of bank losses.

And on top of all that, their stock indices are pretty high so I don't see any kind of value in Europe.

London $FTSE is up 27% in the last 3 years; German $DAX is up 35% in the last 3 years. Both those benchmarks are basically at their 13 year highs. The French $CAC is more beaten up but even that's at a 2 year high. I can't imagine any reason to buy European stocks, unless you're positive that:
1) their banks will survive
2) ECB and (someone else... who??) will keep buying their bad debt at a faster pace than they produce bad debt

European banks are very scary institutions. Look at Deutsche Bank capitalization for instance, using tangible common equity, is 39,261 CET1 / 2,032,690 assets = 1.9% capital = 52:1 leverage multiple

This is more undercapitalized than Lehman Brothers was at the time of failure. These Europeans banks could implode literally any moment there is some shock. For comparison sake, Canadian banks run at 31:1 leverage


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## HaroldCrump (Jun 10, 2009)

the_apprentice said:


> Stocks are at an all time low


I don't believe most stocks are at all time lows.
All time lows were during the depths of the Greek and Spanish crisis between 2010 and end of 2011.
Most have recovered since then.
Good, long term European stocks like Unilever, AstraZeneca, Diageo are up nicely.
Even the worst ones such as Banco Santander and Bank of Ireland are well off their lows.

I am not saying there is nothing to invest, but it's not deep discounts either.


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## james4beach (Nov 15, 2012)

The OP has pulled up the wrong chart symbol if he thinks stocks are at an all time low in Europe. Maybe he mis-wrote and meant to ask if we think it's good to buy Europe at all time highs

London FTSE basically at an all time high
German DAX at all time high


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## humble_pie (Jun 7, 2009)

yea just another voice to say the bloom is off the rose
europe is surprisingly high when i looked recently


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## Belguy (May 24, 2010)

My international target allocation is 15 per cent via VEA which invests in the developed world ex North American and is currently invested 60 per cent in Europe and 39 per cent in the Pacific region. It has a one year return of roughly 18 per cent.

https://personal.vanguard.com/us/funds/snapshot?FundId=0936&FundIntExt=INT

I also have an emerging markets target allocation of 5 per cent via VWO which has had a one year return of approximately 1 per cent.

https://personal.vanguard.com/us/funds/snapshot?FundId=0964&FundIntExt=INT#tab=0

I maintain these allocations through all market conditions and only trade for rebalancing purposes in order to maintain my target asset allocations. I don't worry about the news or political developments etc. etc. as these are long term holds.

Works for me!!


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## liquidfinance (Jan 28, 2011)

I was thinking of getting some IDJG - ISHARES EURO GROWTH Large. 

As you can see from the chart this is not at all anywhere near it's all time low. 

One I may still consider is IDJV - EURO VALUE This one is also currently rewarding holders with a 5.08% quarterly payout and is still a little beaten down. Not sure what Ishares.ca or .com offer as equivalents as these are listed on the .uk site so you would need access to international trading to purchase.


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## liquidfinance (Jan 28, 2011)

james4beach said:


> The OP has pulled up the wrong chart symbol if he thinks stocks are at an all time low in Europe. Maybe he mis-wrote and meant to ask if we think it's good to buy Europe at all time highs
> 
> 
> Lower end look at the IBEX35 (Spain) or FTSE MIB (Italy)


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## Toronto.gal (Jan 8, 2010)

But let's keep in mind also, that those much talked about all-time highs were seen 14 years ago. For example, London FTSE: Dec. 1999 = 6,930. 

Indeed there are many stocks everywhere at multi-year lows.


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## kcowan (Jul 1, 2010)

Belguy said:


> My international target allocation is 15 per cent via VEA which invests in the developed world ex North American and is currently invested 60 per cent in Europe and 39 per cent in the Pacific region. It has a one year return of roughly 18 per cent.
> 
> https://personal.vanguard.com/us/funds/snapshot?FundId=0936&FundIntExt=INT
> 
> ...


So you must have rebalanced in January from Europe to Emerging. How did you make out in that transaction...


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## none (Jan 15, 2013)

20% of my sons RESP is the TD Europe index. Over the long term I'm sure it'll be fine.


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## indexxx (Oct 31, 2011)

Only thing I own is some SAN. Good divvy also.


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## the_apprentice (Jan 31, 2013)

james4beach said:


> Many of us invest in Europe through the standard MSCI EAFE index funds (which is nearly 60% Europe) Personally I am most bearish on Europe among all the regions I track (I would sooner buy the S&P 500 or TSX than Europe).


Interesting. That's exactly what I wanted to find out. I'm bearish myself, although was curious to see what most thought about Europe. Thanks for the suggestions as well, as I have yet to invest in an ETF.


Love the feedback!


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## HaroldCrump (Jun 10, 2009)

If I were feeling overly compelled to buy any European stocks, I'd stick with a handful of large cap, consumer staple and discretionary stocks, listed as ADRs on the NYSE.
Ideally, hold them inside an RRSP and lean towards UK registered corporations to avoid any with-holding taxes, but don't focus exclusively on those and ignore others.
Some examples: Vodafone, Unilever, Syngenta, Astra Zeneca, Diageo, Siemens - just to name a few.

I'd avoid overly leveraged financial sector stocks, unless you can read complex financial statements and figure out all the toxic stuff still on their balance sheets.


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## Sampson (Apr 3, 2009)

HaroldCrump said:


> I'd avoid overly leveraged financial sector stocks, unless you can read complex financial statements and figure out all the toxic stuff still on their balance sheets.


After 5 years of 'open disclosure' it is clear that most of these banks still have lots of uncovered and ridiculously complicated toxic assets on the books. I'd like to jump in some day, but not seeing any clear opportunities now.


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## james4beach (Nov 15, 2012)

Sampson said:


> After 5 years of 'open disclosure' it is clear that most of these banks still have lots of uncovered and ridiculously complicated toxic assets on the books. I'd like to jump in some day, but not seeing any clear opportunities now.


That problem with the banks is the same in Canada, too. It is not Europe specific at all.

Canadian banks did not even disclose to their shareholders all the special loans they got from Canada and US Federal Reserve. It took a freedom of information request and order by the US Supreme Court for shareholders to learn what emergency programs the Big Five banks were involved in.

We still know very little about domestic assistance programs to our banks, e.g. asset purchases by the CPP and specifics of the CMHC assistance program (details unknown as of mid 2012)

The level of transparency has been pitiful. That's unacceptable to me, as a potential shareholder. And nobody cares, nobody is apologetic - that means nothing is going to change. Same in Europe, United States, and Canada.


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## Sampson (Apr 3, 2009)

The banks in Europe had a lot and I presume continue to have a lot more problems then the Canadian banks.

Unless the Canadian banks are continuing to keep everything out of the eyes of shareholders, they haven't been bleeding out semi-random losses like the European banks continue to do so after 5 years. Some American banks are still caught up in it, but for the most part, the government bail-outs helped them sufficiently.

The European banks cannot be bailed out. The Canadian banks presumably should, whether by our Government, or by private equity, I'm sure if our banks start to falter, plenty of overseas investors would like the opportunity to get into the mix.


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## james4beach (Nov 15, 2012)

Sampson said:


> The banks in Europe had a lot and I presume continue to have a lot more problems then the Canadian banks.


I agree with you there. I'm just saying that on the issue of transparency, Canadian banks don't have much to brag about. They were certainly not transparent about their 2008-2009 financial position as revealed by all these secret programs and loans much later. I don't see any reason to expect they will be transparent about their financial positions in the future, should we ever get some kind of domestic economic problem (e.g. housing crash).

Yes you can probably expect that the Bank of Canada and government will continue to engage in secret deals to assist/bail out the Canadian banks, but what kind of basis for investment is that? It's not the way I invest in companies, personally.


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## warp (Sep 4, 2010)

There is always the withholding tax issue with European stocks..( or any Intl stocks)

I have called many US ETF providers in the US, and here in Canada, but can never get a straight answer...but here's what I think happens:

Buying an ETF could pose a second tax problem,...When the Euro/intl companies pay their dividends to the US ETF, there are withholding taxes from all the diff countries. (The % will vary, but can go as high as 35%). 
Then the US etf will send the dividend to you here in Canada, ( minus euro/intl taxes), and withhold US taxes..( usually 15%).

The T-5 you get will only show the US taxes withheld,....that you may be able to use against Canadian tazes otherwise payable, if these ETF's are hels in a taxable account. The Euro/intl taxes that YOU have paid, are not reported anywhere, an are gone, but I think the dirty little secret is that the ETF providers may be using these taxes actually paid by YOU, to decrease THEIR US taxes. 

Some Euro/intl companies will even withhold taxes from dividend payments even if the stock is held in a Registered retirement account. In a TFSA. all worldwide taxes withheld are gone forever.

Like Harold, I prefer UK based individual stocks because the UK does not withold taxes on dividends. All that said, I do own one INTL div etf ........DWZ

Like all tax issues everywhere in the world, the whole thing is a mess.


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## warp (Sep 4, 2010)

Sorry...typo on my last post......

The INTL dividend ETF that I currently hold is DWX....( not DWZ)....( if this means anything to anyone on this board)


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## Belguy (May 24, 2010)

warp said:


> Sorry...typo on my last post......
> 
> The INTL dividend ETF that I currently hold is DWX....( not DWZ)....( if this means anything to anyone on this board)


I hold VEA and watch Mawer International. From a performance point of view, I would choose either of these over DWX for my international allocation.


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