Fisher Investments Editorial Staff

All Things European

By, 11/22/2010

Story Highlights:

  • Media focus on Europe lately has centered on sovereign debt issues in the PIIGS and particularly, Ireland.
  • But quietly, the European private sector is in good health and has many companies and industries well positioned for growth ahead.
  • Greater privatization resulting from austerity measures announced in recent months is frequently feared in the press, but is actually a plus.


From bailouts to auctions, interest rate spreads to credit default swaps (CDSs), debt to austerity measures—most news of late out of Europe focuses nearly exclusively on issues related to sovereign debt. While some European countries (Ireland and Greece most notably) have their issues, and striking against austerity measures seems to have replaced soccer in pastime popularity, much more quietly European private businesses are faring far better.

Last May, when PIIGS were daily headline fodder, fears of government default bled into corporate credit markets as well, spiking corporate bond yields and CDS prices. But now? Not so much. Today, strong balance sheets and a significant decrease in corporate defaults have pushed European investment-grade corporate CDS prices below those of European sovereigns. From investment grade to high yield, corporations have successfully accessed credit markets of late. In fact, while Irish bailout talk dominated headlines last week, 35 European high-yield issuers sold debt—the largest weekly total since records began in 1985.

Europe is home to some very large corporations, many broadly exposed to bullish forces driving global economic growth. Germany—both geographically and economically the center of the EU—has posted solid growth in recent quarters, primarily driven by exports. German companies are now positioning themselves to further capitalize on strong global growth by deploying cash to expand at home and abroad. Germany's economic vibrancy has led to an 18-year low jobless rate and increased wages for many German workers. Some analysts are forecasting this bounty will lead to a nicely positive Christmas shopping season in Deutschland.

Elsewhere in Europe, some fret possible short-term negative implications of government austerity measures (which have generated a predictably rash response from the mostly government workers impacted), but there is a positive underbelly to these moves as well. Many of the measures involve greater privatization or reduce the government's size—shifting resources to the more efficient private sector. (It's hard to fathom a private business maintaining nearly 800 outdated agencies as the Greek government has.) Not all measures carry the same long-term benefits (tax increases come to mind). But the increased privatization austerity has brought is a positive aspect many short-term focused folks fail to consider.

The European private sector's health—of great importance to those investing in stocks—stands in contrast to PIIGS budget and government debt woes. European corporations have ably demonstrated in 2010 their health, powerful drivers for future growth, and adaptability to shifting government winds. Instead of focusing on European governments' fiscal failings, notice that all things European simply aren't government—and many are quite healthy.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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