In a broad sense we are entering into a global synchronized rebound. Certainly the U.S. stands out for the magnitude of its fiscal and monetary response to the crisis, but we did not act alone in these efforts. There will be stimulus led growth around the world. And global markets excluding the U.S. have a few things going for them in a rebound relative to the US – first is valuation their markets are much cheaper than ours - and secondly is compositionally the international stock indexes are more economically sensitive, so should have a stronger rebound. So broadly I see an opportunity for international stocks to outperform as the recovery takes hold.
That said, looking around the corner, out beyond this cyclical rebound, visibility is low, but, here’s the thing both Europe and Japan have some secular growth disadvantages, and I don’t think those go away.
Both of these economies will continue to struggle with low economic growth related to a shrinking labor force and growing entitlement burdens. Even with that backdrop though, if you think about it, if there is a great company with great products it really shouldn’t matter where they’re domiciled. There are selective opportunities in all markets.
Emerging markets are a different story. I don’t see them so much as a play on an economic rebound – though that certainly helps – but more of a way to capture some massive growth potential that is being presented by a huge population base that’s climbing the middle class ladder and adopting new cost saving digital services. There are already potential Alibaba sized opportunities residing in South East Asia, India, and Latin America, and there will be new companies offering products and services we haven’t even thought of, and you just have these huge populations to sell into. This is where I see a lot of future wealth generation coming from – it’s the Emerging Markets.
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