Investing amid synchronized global growth
Joel Dresang: Marc, for the past four years, U.S. stocks have outperformed international stocks generally, but that’s flip-flopped so far in 2017. International stocks have outperformed U.S. stocks, what’s going on?
Marc Amateis: I think what’s happened, Joel, is when we came out of the recession, the U.S. kind of led the way with trying to stimulate growth in the economy through lowering interest rates, through quantitative easing programs where we were buying our own bonds. That really gave a boost to our economy.
Now, I think the other countries that were a little slower to go down that road have been doing that long enough where it’s really starting to show up. They’re keeping their interest rates, for the most part, lower than ours. They’re continuing their quantitative easing programs where we’ve basically stopped ours.
Joel: So other economies are catching up, what about stocks?
Marc: Yes, as well as we’re doing here in this country in our own stock market, a lot of the developed world and emerging markets are doing even better. And again, that’s a reflection of number one, they’ve got some catching up to do. And number two, their valuations are lower. Because our stock market has run up as it has, our valuations are higher than most of the valuations in stock markets around the world.
Joel: With higher valuations for U.S. stocks, and the comeback in other countries, is this a good time to get into international stocks?
Marc: Well, we’ve always believed that you should have exposure to international stocks, but I think this is a real good time to reevaluate your position. And, you may find in discussion with your financial advisor that you’ve got some room to add to your international exposure. If that’s the case, this might be a good time to do that because typically, again over long periods of time, markets tend to perform comparably, but right now I think you’ve got some opportunity where the international markets are going to play catch up.
Joel: Remind us why we want international stocks in our portfolio.
Marc: I think, number one, you want it for diversification, again spreading your money around, exposing it to different forces at different times. But beyond that, I think it’s opportunity. Again, there’s opportunity with lower valuations in many of the overseas markets, with them playing catch up with their continuing low interest rate and quantitative easing policies. Some of those countries are even buying their own stocks beyond their bonds, and that’s giving their stock markets a boost.
Joel: So what are some of the drawbacks of international stocks?
Marc: Well, one would be geopolitical risk. Another would be the fact that a lot of those countries aren’t as transparent as we are here in the states with our rule of law and with our political system. Liquidity issues are another one. So, again, a reasonable exposure to overseas, but be careful – especially with some of the emerging markets and frontier markets that pose a much higher risk.
Joel: And do you have ways of mitigating some of those risks?
Marc: Yes, there are some ways. For example, there are funds in this country that invest in large multinational firms even based in the United States that just have big exposure to overseas and to emerging markets. So that’s a real good way to get that exposure, get exposure to the growing middle classes around the world, without taking as much risk as actually investing in those countries.
Joel: So what you’re saying is it’s a good time to look at your international exposure but be cautious.
Marc: Exactly. This is the first time in quite some time that we’re experiencing synchronized global growth in developed economies around the world. In fact, in the first quarter, all regions globally are showing growth.
So, you want to be able to take advantage of that, but on the other hand, you want to be cautious. You don’t want to overexpose yourself to any particular area. But get with your advisor, and know what you own. And if there’s some opportunity there for some additional exposure, now is probably a pretty good time.
Global exposure via large U.S. companies, a Money Talk Video with Marc Amateis.
Over there: Investing in a global economy, a Money Talk Video with Kyle Tetting
Emerging markets: Potentials vs. risks, a Money Talk Video with Steve Giles
International investing includes risks, a Money Talk Video with Brian Kilb
The dollar’s mark on international funds, a Money Talk Video with Marc Amateis
Investment insights via Morningstar Snapshot, a Money Talk Video with Tom Pappenfus
Shopping for Foreign Stocks? Here Are a Few Things to Keep in Mind, by the Financial Industry Regulatory Authority
Economic SnapChart: Strong Dollar, by Paige Radke
International Investing, from the Securities and Exchange Commission
(initially posted June 19, 2017)