International equities have room to run
Our positive view on the international equity markets—particularly in developed nations—is based on five factors:
- Success on the coronavirus front. Most developed international countries have restarted their economies with little to no virus resurgence. This has led to improving economic numbers and rising business and consumer confidence.
- Retail rebound. Related to the economy restart, May retail sales across the eurozone were 17.8% higher than in April—larger than the 14% economists had expected.
- Unprecedented monetary and fiscal stimulus. The eurozone’s combined monetary and fiscal stimulus adds up to 44% of the region’s GDP, while Japan has launched stimulus equal to a jaw-dropping 60% of its GDP.
- Stable political environment. Despite a looming Brexit deadline, the eurozone is rather stable with Germany and France moving Europe closer to its “Hamilton Moment,” setting aside their differences in forming a monetary and fiscal union.
- Attractive valuations. International valuations relative to the U.S. are at global financial crisis lows, even adjusting for differences in the sector composition between the two markets.
Emerging-market outlook more mixed
While China and other Asian markets have contained their Covid outbreaks and are experiencing V-shaped recoveries, major markets such as India, Brazil, Mexico and the Middle East are still experiencing surges. We also are somewhat concerned with rising debt levels in emerging economies, although rising U.S. deficits should put downward pressure on the U.S. dollar, providing a tailwind to these economies. Bottom line: There’s opportunity to be found, but being selective among emerging markets will be key through the remainder of 2020.