over 1 year ago • 2 mins
High inflation has been forcing the European Central Bank (ECB) to hike rates aggressively even as economic growth slows, suggesting that a recession may be all but guaranteed for the 27-country bloc. Worse, given the fact that inflation tends to linger and interest rates tend to be felt by the economy after something of delay, the ECB might be forced to keep on hiking rates, even at the risk of pushing the economy into a deeper and more prolonged downturn. Put more simply: things could well get a lot worse before they get better.
Over the near term, the outlook is dire for EU assets: the region’s facing a deep energy crisis, a staggering cost-of-living crisis, rising political fragmentation, and now sharply slowing growth. And much of that is expected to get worse as the region enters winter.
But at some point, EU assets will become attractive again for investors with a long-term horizon. European stocks are already much cheaper than their US counterparts, and the bloc’s currency (the euro) is admittedly reaching interesting levels. Of course, these things are cheap for a reason, and in the near-term, European assets could fall a lot further. But for investors with a long-term horizon, the opportunity to scoop up European assets at discounted prices might be too good to pass up. Remember that the best long-term returns are often achieved by buying when the outlook seems the darkest. We might not be there yet, but we certainly appear to be getting closer.
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