Our Dina Ting offers three reasons she and her team believe the case for international markets is once again strong, and opines on how recent market events have created new—or amplified existing—opportunities for investors to express views on specific countries.
Over the last 10 years, US large-capitalization (large-cap) equities have experienced a tremendous run, with the relative strength of US dollar (USD) helping the cause.1 However, if you look back 10 years prior (2000–2010), you’ll find that international markets
delivered better returns.2
Looking forward, here are three key reasons why we believe the case for international markets is, once again, strong:
Lower valuations: International equities have relatively lower valuations versus US equities.
Economic recovery: We believe countries that are taking a more measured approach will still see the benefits of their stimulus packages, but that the market’s response will take longer to materialize. Moreover, there are countries outside the United States that have been a better model for handling the COVID-19 crisis (including smart lockdowns, testing and tracing strategies versus a disarray of conflicting policies). Other countries managed to act early to systematically control the pandemic and have experienced less disruptions, and appear better positioned to bring their businesses and economies back. In addition, we believe these countries remain vigilant with continuous enhancements to face the evolving virus and continue to benefit from centralized strategy, creating a more sustainable recovery with less risk for regression/relapse.
Foreign currency: During the worst of the COVID-19-induced downdraft, we witnessed flight-to-safety behavior driving USD appreciation relative to many foreign currencies. Most notably, by the end of the first quarter 2020, we saw the USD appreciate 29%, 28%, 26% and 24% against the Brazilian Real (BRL), South African Rand (ZAR), Russian Ruble (RUB), and Mexican Peso (MXN), respectively.3 After that initial rush, we expect foreign currencies to recover versus the USD; in fact, we saw signs of recovery against the Australian dollar (AUD) as well as against developed European currencies, and expect that other foreign currencies will likely start to strengthen, providing extra tailwind to international investing.