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International Equities Investment Outlook: October 2022

By Richard "Crit" Thomas, CFA, CAIA
International Equities
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October 2022 International Equities

Over the last quarter developed and emerging markets lost ground to the S&P 500 due mainly to dollar strength.

International Equities Chart 1 Oct 2022

Source: Bloomberg

Excluding the dollar the MSCI EAFE or developed market index has dramatically outperformed the S&P. It is interesting the strong dollar has actually helped earnings for most large companies that are located in Europe and England as they source the majority of their earnings outside of their home markets, so the currency translation is helping earnings. Low valuations are also helping hold up international developed market stocks.
International Equities Chart 2 Oct 2022

Source: Bloomberg

But the earnings side of the story is unlikely to hold up as we enter something of a global slowdown. Still if their currencies remain weak that should create a competitive advantage.

At the outbreak of the war in Ukraine we moved international developed equities to an underweight. Given Europe’s geographic proximity to the war and much greater dependence on trade with Russia and the Ukraine, we believe Europe’s economy is more at risk of a downturn.

International Equities Chart 3 Oct 2022

Additionally, central banks around the world have embarked on a tightening cycle that should bring about a global slowdown. Japan, is an exception as they face a much lower recession risk. Japan has seen a dramatic decline in their currency as their central bank is still conducting policy to hold long term rates near zero. Unlike European companies Japan’s large global conglomerates relocated a lot of their manufacturing outside of Japan, so the currency weakness is less of a competitive advantage.

International Equities Chart 4 Oct 2022

Emerging market performance has been very mixed with strength in resource rich countries and weakness seen in more technology and goods exporters like Taiwan and Korea. China has been struggling with the property sector downturn and COVID related lockdowns. This highly contagious virus is likely to continue to frustrate their zero COVID strategy and we are also concerned over signs that the Chinese consumer spending is slowing and youth unemployment is rising. Still valuations capture a lot of this weakness and in general emerging market countries have held up very well throughout the pandemic and now a Fed tightening headwind. It suggests an emerging market resiliency we haven’t seen in the past and is worth watching.

For more of our thoughts on international equities please visit our website at Touchstone Funds.com


This commentary is for informational purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation to buy, sell or hold any security. Investing in an index is not possible. Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results.

Please consider the investment objectives, risks, charges and expenses of a Fund carefully before investing. The prospectus and the summary prospectus contain this and other information about the Funds. To obtain a prospectus or a summary prospectus, contact your financial professional or download and/or request one at TouchstoneInvestments.com/literature-center or call Touchstone at 800.638.8194. Please read the prospectus and/or summary prospectus carefully before investing.

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©2022, Touchstone Securities, Inc.

crit thomas global market strategist

Richard "Crit" Thomas, CFA, CAIA

Global Market Strategist
Crit is responsible for examining and evaluating economic conditions, generating insights and providing a sharpened perspective on investment strategies for enriched portfolio construction.

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