International: 3 things to watch 2019 International: 3 things to watch 2019 http://www.federatedinvestors.com/static/images/fed-logo-amp.png March 15 2019

International: 3 things to watch 2019

Trade friction, political instability and contrarian opportunities could shape the global investing environment in the new year.
Published December 27 2018
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  • Trade friction Initially viewed as a just a threat or spat, the Trump administration upped the stakes on trade with the European Union (EU) and China as 2018 progressed. China is the world’s second-largest economy and the EU’s second-largest trade partner. We think current trade uncertainty is the main explanation for diverging growth rates between the U.S. and the rest of the world. While we might get some clarity in coming months with the U.S. Commerce Department’s decision on EU auto tariffs, U.S.-China relations likely will ebb and flow over the year but ultimately avoid a full-blown trade war.
  • Political instability Rising populism across the eurozone in 2018 wasn’t restricted to Brexit. There was a budget standoff between Italy and the EU, plummeting approval ratings for French President Emmanuel Macron and the end of Angela Merkel’s tenure as the leader of Germany’s Christian Democratic Union. Amid this transitioning political landscape, European Parliament elections will be held in 2019 and will be critical in shaping the future of the EU.
  • Contrarian investing Despite a steep late-year sell-off, U.S. indexes significantly outperformed their international counterparts in 2018 as international equities were out of favor most of the year. That’s reflected in their valuations: the forward P/E multiple of the MSCI World Ex-US Index is 12, nearing the low-end of its decade range of 10.8-18. We are mindful of the near-term uncertainties but think visibility will improve as we move through 2019, with the majority of the aforementioned headwinds proving temporary.
Tags International/Global
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.

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.

MSCI World ex USA Index captures large and mid-cap representation across 22 developed market countries excluding the United States. Indexes are unmanaged and investments cannot be made in an index.

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