International stock trading could be in the first inning as investors look for alternatives to US tech
“CATCH” and other big-cap tech have faded as trades of choice, but investing in foreign stocks as a way to generate better returns is only just beginning. “When you have a bad year like last year, no matter what part of the world you are in, it only leads you to look at more things,” said Matt Maley, Miller Tabak’s chief market strategist. “The US has worked so well for so long that they just didn’t have to worry about other things. That’s forcing investors to look at a broader range of opportunities than they have in a decade.” Outperformance in overseas markets has not gone unnoticed by US investors, who have been buoyed by the S&P 500’s 19. 4% have been impacted in the past year. Germany’s DAX, for example, is up about 8.5% year-to-date and about 26% since its September 29 low. Hong Kong’s Hang Seng Index is up nearly 10% so far this year, and Mexican stocks are up 11%. In contrast, Google parent Alphabet, a FANG member, is up about 3.3% in the new year but is still down about 6.5% since the end of September. Other members of FANG are the Facebook mother Meta Platforms, Amazon and Netflix. Investors also group the largest market cap stocks, Apple and Microsoft, under the umbrella of FANG. Amazon and Meta are up double-digits since the beginning of the year, but over the past 12 months Amazon is down 40% and Meta is down about 58%. While the S&P 500 is up a little over 11% from its October closing low, Apple is actually down about 3.6% over the period. “Some of the shifts we’re seeing in the US market away from technology leaders to industrials, materials and energy leadership — that means a higher share of markets like Europe and emerging markets,” said Liz Ann Sonders, chief investment strategist at Charles Schwab on CNBC. “That helps explain why they’re doing better than the US.” What’s driving it? The increased interest in foreign markets had several catalysts. For one thing, the US dollar has weakened, taking the wind out of corporate earnings in many countries. Investors in foreign equities also benefit when their local currency appreciates against the dollar. “This topic is spreading like wildfire this week,” Maley noted of the flagging dollar. He said the dollar index has slipped below the key 103 level and there could be a major trend reversal if it continues lower. The dollar index was just above 102 on Friday. Another key catalyst was China’s abrupt departure from its zero-Covid policy. That means its reopening could be accelerated, which could ultimately help its economy and have a positive impact on its Asian neighbors. Maley said a report this week from Goldman Sachs that Europe may be avoiding a recession also helped fuel interest in these markets. Goldman economists pointed to China’s reopening as a potential boost for Europe’s export economy. Europe is also expected to get through the winter without a major impact of an energy shock on its economy, thanks to warmer weather, falling prices and ample supplies. International trade has been called upon by big Wall Street firms like Bank of America, which last week said ‘buy the world’. “We’re into it and we love China,” said Julian Emanuel, Head of Equity, Derivatives and Quantitative Strategy at Evercore ISI. “Away from China, we love European and Japanese financials.” “First Inning” The iShares MSCI European Financials ETF is up 9.6% year-to-date. EUFN 1Y line euro fins “This is the first inning of an internationally outperforming nine-inning game,” said Emanuel. “International markets could bet on multi-year outperformance.” Investors are now watching the foreign markets a lot more and focusing on what is happening in currency pairs like the dollar/yen. “It’s the same psychology as saying we’re no longer focused on FANG, because as investors realize at a time when money is no longer free, it will require more careful security selection and a broader perspective.” more things matter,” Emmanuel said. “Now FANG is officially not the only game in town. Everything else matters more.” Emanuel said he expects China to continue to cope with Covid waves, but its reopening should be successful sometime in the second half of the year. “You can see anecdotally that people are feeling liberated in terms of their ability to travel,” he said. “Over the past year and a half, Chinese consumers have accumulated a trillion in excess savings.” Investors are piling into China investment games. KWEB 1Y mountain kweb Year-to-date, the iShares China Large Cap ETF, FXI is up about 13%, while the KraneShares CSI China Internet ETF, or KWEB, is up about 16%. The EEM, or iShares MSCI Emerging Markets ETF, is up 8.5%. JonesTrading’s David Lutz said he’s noticed the most activity on the KraneShares ETF. “I think that was the early riser and main leader in the space,” he said. “A lot of people are really upset by China.” He said the EEM, iShares MSCI Emerging Markets ETF is attracting more interest. As for Europe, he hasn’t noticed as much action on European ETFs. “I think a lot of investors will bet on European equities from the start,” he said. Emanuel said European and Japanese stocks have been held back by years of negative interest rates and that is changing now as central banks tighten policy. “The simplest and most important reason is that the dollar’s 11-year rally ended on September 28, which is why we also look at gold,” he said. “We’re not calling for a collapse in the dollar, but it’s a change in psychology. People are more comfortable with this idea, especially since Europe and now Japan are breaking the psychology around negative interest rates.”
https://www.cnbc.com/2023/01/13/international-stock-trade-could-be-in-the-first-inning-as-investors-seek-alternatives-to-us-tech-.html International stock trading could be in the first inning as investors look for alternatives to US tech
