This is not an academic argument about how many angels can balance on the head of a pin. It matters because the focus on production and boosting GDP growth is actually counterproductive in a world of aging and shrinking populations. Boosting supply during a period of slack demand simply causes deflation … which in turn discourages future investment and creates a debtor’s nightmare.
Just ask Japan.
Japan is further along the path of demographic decline than Europe. It has the oldest population in the world, and adult diapers are now a more promising growth business than infant diapers. Japan also happens to have the largest debts in the world, fast approaching 240% of GDP.
Japan’s leaders have effectively spent their country into insolvency with Keynesian deficit spending and have nothing to show for it. Sure, Japan has great roads and infrastructure. But it’s all for naught if there are no Japanese citizens left to use them.
Given all of this, you might be surprised to hear that I am actually bullish on Europe, at least in the short-term. European companies are, on average, quite a bit cheaper than their American or Japanese counterparts, and I expect investors to warm up to Europe as the threat of meltdown continues to recede. Furthermore, Europe is finally starting to see those first green shoots of growth; in the past week, the Spanish unemployment rate fell for the first time in two years, and European oil demand is on the rise — again, for the first time in two years. As better economic news continues to drip in, I expect investors to re-evaluate Old World stocks.
But at the same time, I recommend you choose your European investments carefully. Focus on companies that are domiciled in Europe but that get the bulk of their revenues overseas.
In my last article, I mentioned Dutch brewer Heineken (HEINY) for its outsized exposure to developing Africa. Unilever (UL) and Nestle (NSRGY) are also fine additions. Both have relatively modest exposure to the European markets, and both are well-positioned to benefit from rising living standards in emerging markets.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long UL and NSRGY in his “Drip and Forget” dividend investing strategy, and HEINY is a current recommendation of the Sizemore Investment Letter. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar but also which stocks will deliver the highest returns. The series starts November 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.