ECB Weighs Monetary Policy Options

By Richard Cox

One of the world’s most important financial bodies is the European Central Bank (ECB), and it is an entity that has some important decisions ahead of itself in terms of the monetary policy direction that is likely to be taken for the Eurozone.  There are many important factors that are currently facing this central bank, as elections in countries like Germany, the aftermath of the Brexit event, and a path toward monetary policy normalization are all taking the attention of ECB President Mario Draghi.

For investors and businesses, there are many ETFs that will allow for profitable opportunities in the financial markets.  These are related to the Euro area and will present tactics that can be used to position for the possible upside in regional stock markets that might be seen once all of these issues run their course.

Facing Market Uncertainty

The main issues that have been facing stock instruments like the iShares MSCI EMU Index ETF (EZU) have kept tight restrictions on the ability of the ECB to normalize monetary policy after the historic quantitative easing programs that were put in place after the sovereign debt crisis a few years ago.  

According to data compiled by Euroclear Group, the sovereign debt situations mostly impacted countries like Spain, Portugal, Italy, and Greece.  But the impact was widespread and it caused the ECB to change its approach in ways that led many investors to lack confidence in the regional stock markets.  But these trends have already started to change, with ETFs like EZU now looking like they are on the verge of a major break higher.  

For investors, this is good news because there are not many regional stock markets that offer value.  If we look at the S&P 500 and the Dow Jones Industrial Average in the United States, we can see that the benchmarks have hit nearly 40 new record highs already this year.  This can make it difficult for new investors that are not already positioned in these areas.

Finding Value in Stock Markets

Anytime we are looking to make a stable long-term investment, it is essential to find undervalued opportunities that can grow over time.  At this stage, it is looking as though the Eurozone might be the best place for corporate investments in 2018.  This is due in large part to the fact that the ECB is now enacting policies that will bring confidence back into the region and raise valuations for shares in European companies.

This creates some interesting opportunities for investors over the next few years as the global stock market rallies have been missed for the most part in countries like Germany, Austria as political elections and Brexit uncertainties weighed (perhaps excessively).  For all of these reasons, investors should keep these areas on the radar because there should be some substantial opportunities for gains heading into next year’s trading period.

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