Globally, risk assets have moved into bear market territory and recession risks are high. We have been advocating a more cautious approach to risk assets, but are looking for opportunities to add risk where valuations allow us to look through near-term threats. We moved to an EAFE underweight at the start of Russia’s invasion of Ukraine. While relative valuation
remains attractive, we see near-term risk to relative earnings prospects, though the headwinds from the stronger dollar appear to have dissipated. We also think that the sanctions against Russia will remain in place for an extended period. We believe that the U.S. economy and markets are more insulated from reduced trade with Russia and higher commodity prices.
We did move to an overweight for EM exposure after China signaled a shift to loosen its zero-COVID policy. While China still faces headwinds from its property sector and companies offshoring manufacturing, the release of pent-up consumer demand is likely to overwhelm. Valuations are attractive and EM countries in general are likely to see much better economic growth versus developed countries.
For more of our thoughts on international equities please visit our website at touchstoneinvestments.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.
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