This could be the year for international investment.
Foreign stocks have the opportunity to outperform US stocks in 2021, three market analysts said Thursday. Developed and emerging markets have outperformed the S&P 500 since the start of the year, with China leading the way:
Global gains versus emerging markets in 2021
| Global Markets | 2021 profit | Emerging markets | 2021 profit |
|---|---|---|---|
| China | 12.8% | Indonesia | 6.9% |
| South Korea | 10.0% | South Africa | 4.8% |
| Japan | 4.8% | Thailand | 4.5% |
| Europe | 3.3% | India | 3.0% |
| S&P 500 | 2.5% | Mexico | 3.2% |
After a decade of US stocks outperforming their international peers, “you are beginning to see signs of market rotation,” said Jeremy Schwartz, global director of research at WisdomTree Asset Management, in an interview with CNBC’s “ETF Edge” Thursday. “But there could still be a long way to go.”
Emerging markets “now have some of the best growth opportunities” in the market as they trade with relative discounts, Schwartz said. With the dollar weakening and a new, perhaps more trade-friendly, Biden government coming to power, their catalysts only add up, he said.
“As we open, I think the international cyclicals can do well,” he said.
Chinese technology stocks could also give the US juggernauts “a run for their money” with their high rates of innovation, cheap share prices and rapid growth, added Schwartz.
“When you think of the US, it’s really technology dominated and the shutdown economy is doing well for US technology,” he said. “These EM tech giants can rival US tech giants in the long run.”
Bryon Lake, head of the US client ETF at JP Morgan Asset Management, doubled and called the valuations overseas “extremely attractive”.
“We saw some of the biggest drawdowns last year, so we expect this snapback,” he said in the same “ETF Edge” interview, adding that “China is a huge contributor to recovery trade.”
Lake recommended an actively managed approach to investing overseas, flagging JPMorgan’s International Growth ETF (JIG), a basket of 50 to 70 stocks with a weighting close to 15% versus China.
“One of our concerns is that the most important benchmarks internationally are heavy banks and heavy energy, while we are more positive in areas like clean energy, semiconductors and luxury goods. So we believe there will be some differentiation.” “Said Lake.
Professional investors have also taken an interest in international assets, said ETF Trends and ETF Database CEO Tom Lydon in the same “ETF Edge” interview.
“We survey thousands of advisors every week and they are very optimistic in international markets and very optimistic in emerging markets,” he said, reiterating that Chinese stocks have “great upside” in the Biden era.
One area of international investment that is often overlooked could have the greatest opportunity of all, Lydon said.
“We don’t spend a lot of time talking about dividend opportunities overseas,” he said. “Both JPMorgan and WisdomTree … have raised concerns about fixed income investments in the US, and also discussed the options for dividends, or getting that income in the form of dividends by buying international markets, which are very, very attractive today.” “
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