Eurozone stocks climb higher – Russell Indexes

The Russell Eurozone Index returned 0.7% in the first ten days of 2014, following a gain of nearly 25% in 2013, but Russell strategists warn that cracks may appear if deflation gathers strength.

As of January 10, Greece was the Index’s top performing country constituent year to date. It returned 10.7% with Portugal returning 7.3% and Austria posting a 5.2% gain. Russell Eurozone Index country constituents Germany (-0.5%), France (-0.7%) and Luxembourg (-1.3%) had negative year-to-date 2014 returns as of January 10.

Strategists at Russell Investments see continued growth in the Eurozone in 2014 but believe the region may not be a simple “buy and hold.”

“Despite positive recent performance, the Eurozone remains on thin ice. As deflationary forces gather strength, the pressure builds and cracks appear. Our biggest worry for 2014 is the weak condition of banks, their toxic connection to governments and the negative impact on growth from a lack of credit.

“On the other side of the equation, reflationary policies such as less austerity and continued central bank support should keep the ice from breaking, particularly in light of Mario Draghi’s renewed pledge to maintain an accomodative monetary policy for the foreseeable future,” said Wouter Sturkenboom, investment strategist with Russell Investments Europe.

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