3 reasons to keep an eye on international stocks 3 reasons to keep an eye on international stocks http://www.federatedinvestors.com/static/images/fed-logo-amp.png

3 reasons to keep an eye on international stocks

Accelerating growth, improving earnings and central bank stimulus are creating a supportive environment for many equity markets around the world.
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While U.S. equity markets keep marching higher, the story in much of the rest of the world is equally compelling. In particular, our international equity team favors overweight positions in Europe, with Japan a close second. We’re more selective in regards to the emerging markets (), with India the most attractive option. Here are the details:

  • Europe Third-quarter GDP growth in the eurozone reached 2.5% on a year-over-year basis, with individual country sentiment, manufacturing and services PMIs suggesting acceleration into 2017’s final quarter. November was the best month for euro-area manufacturing in 17 years, followed in December by the best month since the Markit survey began in 1997. Auto sales are at a 10-year high, and equity valuations—particularly relative to those in the U.S.—are attractive. A few concerns: inflation has exhibited signs of potentially picking up, a goal the European Central Bank has been pushing but one that if it comes true could bring an early end to extraordinary monetary stimulus. Italian elections in March, Tory infighting over Brexit terms and Germany’s new coalition government of historically fractious partners also bear monitoring.
  • Japan It is in the midst of its strongest and longest stretch of uninterrupted economic growth since the early 1990s, with GDP expanding at a much better-than-expected 2.5% rate in the July-September period, its seventh straight positive growth quarter. Export and retail sales are rising, inflation has started to peek its head above ground (after two decades of deflation, Japan wants and needs inflation) and manufacturing activity is at a 4-year high. The supportive environment has pushed the Nikkei to its highest level since November 1991. Among potential risks: Bank of Japan Gov. Haruhiko Kuroda’s first term ends in April. The market expects the uber dove to be reappointed, although no governor has succeeded to a second term since the 1950s. A strengthening yen and ongoing corporate scandals also represent potential headwinds.
  • India This is our favorite country in a mixed EM universe. While China growth remains solid in the mid-6% range, data in Brazil has been trending positively but mixed of late, Venezuela is in a downward spiral and Mexico confronts both a national election and questions over NAFTA. India, on the other hand, has reclaimed the mantle as the world’s fastest-growing country following a brief slowdown on major tax and currency reforms in 2017, with the IMF this week projecting its GDP to grow 7.4% this year and 7.8% in 2019. The biggest possible risk? A spike in inflation.

The bottom line: for long-term equity investors, it’s not just a U.S. story. Accelerating growth, still-accommodative central banks and improving earnings are creating investment opportunities across much of the globe.

TAGS International/Global Growth
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DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country.

International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards. Prices of emerging-market and frontier-market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets.

Japan's Nikkei 225 Stock Average is a price-weighted index comprised of Japan's top 225 blue-chip companies on the Tokyo Stock Exchange.

The Markit PMI is a gauge of manufacturing activity in a country.

The Markit Services PMI is a gauge of service-sector activity in a country.

Federated Global Investment Management Corp.