European currencies and markets are on sale – and they might get a lot cheaper in a couple of months.
This could be a generational opportunity. If you position yourself to take advantage of it now, you might score some huge bargains.
Between now and the end of November, there could be a lot of turmoil in European markets…
That’s because, on October 31, the United Kingdom will decide whether it will leave the European Union with or without an agreement on issues ranging from trade to immigration.
A “hard Brexit” (leaving without an agreement) is the likely scenario. But there is also a chance that the decision will be delayed until an agreement is drafted.
If there is a hard Brexit, there is a good chance that the British pound will tank even more than it already has. If it does, the euro may follow suit.
This may set a precedent for other countries to also leave the EU, and that may lead to the unraveling of the whole union at some point in the future. At least, that is the perception.
And it has a lot of investors worried… but there’s a potential upside.
Devaluation of European Currencies
The possible panic could make European assets very cheap in the short term. That includes great dividend-paying companies like Unilever (NYSE: UN), GlaxoSmithKline (NYSE: GSK) and most other British stocks.
And as I said, the impact on currency could be significant as well. The British pound could drop to levels not seen in decades. In the worst case, it could approach parity with the U.S. dollar.
The upside, and the reason why I’m bullish on British equities, is that devaluation could propel growth in British companies.
When a currency devalues, its country becomes a cheap place to do business. If that country, in this case the U.K., can sell its goods and services, like tourism, for cheaper prices than its competitors can, it will attract business.
In the short term, the local economy will see contraction and possibly inflation. This is because a weak currency must pay more to buy the same goods.
But the longer-term outlook for business can be significantly brighter. For example, the U.K. has other trading partners around the world, particularly the United States. If the U.K. can no longer rely on trading with other members of the EU, other trading partners will see an uptick in activity.
When panics occur, they often present the best opportunities to buy stocks and currencies – provided that the country doesn’t slip into further trouble like Greece and Argentina have.
The U.K. may look like a political basket case, but its economy at least stands a chance!
There are several ways to participate in the U.K. and European markets in the event of a panic. The most obvious ways are through currencies.
You can buy using currency exchange-traded funds (ETFs) like the Invesco CurrencyShares British Pound Sterling Trust (FXB) and the Invesco CurrencyShares Euro Trust (FXE). I would look for an entry point when levels reach at least 5% to 10% below where they currently are.
In terms of companies, U.K.- and European-centric ETFs would give you the best broad exposure.
Buying during panics is not easy. The instinct is to run the other way.
But in the 18th century, one of the Rothschilds (one of the most notoriously wealthy families in European history) famously coined the phrase “Buy when there’s blood in the streets, even if the blood is your own.”
This still holds true today. The best opportunities will come when you take the plunge into a dire economic situation. After all, the panics of today lead to the fortunes of tomorrow.
Good investing,
Karim