Investing in Europe is Risky with Economic Decline and Resignation of Bulgarian Government

With financial challenges continuing to plague parts of Europe the Eurozone economy is expected to shrink again in 2013.  Economist predict a 0.3% decline.  This is the second recession faced by the area since 2009.  This is contrary to the initial predictions that their economy would be recovering and moving in a positive direction this year.  Many experts blame the job market, tight lending environment, and the housing market for the continued decline.  For those living in parts of the Eurozone these statements seem to severely underplay the overall economic challenges being faced by its citizens.

The declining economy and bad job market is leading to social unrest in addition to financial problems.  On February 17th protesters took to the streets in 35 Bulgarian countries to protest high utility prices.  This was one of many protest throughout the country that have lasted for over ten days.  Citizens were protesting high prices and lower living standards.  These protest culminated in Prime Minister Boiko Borisov issuing  a formal resignation of his government.  Now the future remains unclear for Bulgaria.  While only one country inside the Eurozone these recent events point to a clear unrest in the area, making investments into the EU fraught with additional risk.  It is not simply the recession that investors have to worry about. These types of protest are becoming  more common as the overall public is dissatisfied with the conditions.  Protest, and changes that take place because of them, can directly impact jobs, transportation, logistics and operations within a company.  While Western European countries like Germany  try to prop up other countries within the zone investors have to question how long that can continue.

As an investor it is important to evaluate the risk associated with investing in companies located within the Eurozone.  With political unrest there could be changes taking place that would directly impact a companies profitability, or even ability to compete.  By contrast the US economy is expected to continue to grow at a rate of 2% to 2.5% per quarter throughout 2013, making it ripe for investing.  The infrastructure in the US is stable, there are no foreseeable mass protest on the horizon, and the economy is showing solid signs of rebounding.  The housing market grew at the fastest rate since 2006 as median home prices in December of 2012 were 11.5% higher than December of 2011.   Now is the time for investors to direct funds into the US economy and benefit from growth that is taking place and on the horizon.  Investors acting now have the opportunity to negotiate terms with businesses that are highly in their favor, while waiting for further growth could lead to negotiations trending in favor of the current business ownership group.

Investors that are investing funds in the European market should evaluate their portfolio and determine whether they are confident in its ability to ride out the political unrest in Europe.  If not, redirecting funds into US businesses may be a safer and more prosperous alternative.


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