Investors looking overseas as global economy shifts

After the financial crisis of 2008, U.S. equities outperformed their overseas counterparts for more than ten years, thanks to a strong economy and the dominance of American corporations around the world. As worries about rising interest rates, persistent inflation, and an approaching recession caused the S&P 500 to decline by 19% last year, that run came to an end.

U.S. stocks have retreated after surging higher in January due to concerns that the Federal Reserve may be compelled to raise interest rates more than initially anticipated to temper a hot economy. The S&P 500 fell 1.5% on the day after Fed Chair Jerome Powell indicated the central bank’s timetable of quarter-point interest-rate rises isn’t written in stone during a hearing on Capitol Hill on Tuesday.

Investors avoided foreign stocks for the most of last year as they considered the geopolitical and economic uncertainties at play around the world. Due to supply disruptions and an increase in energy costs brought on by Russia’s invasion of Ukraine, Europe’s already high inflation rate was in danger of getting worse. China’s strict zero-Covid policy hindered global growth in Asia, hurting the revenues of businesses with exposure to the second-largest economy in the world.

Some investors assert that they feel the worst of the economic issues that the world faces have passed. Energy costs have significantly decreased from their 2022 levels, which is reducing inflation in the eurozone. Chinese authorities have abandoned the limits imposed during the pandemic and reduced the pressure on indigenous technology firms.

Since international companies typically sell at a significant discount to their American counterparts, many investors believe they provide better value. According to FactSet, the S&P 500 companies are trading at about 18 times expected earnings for the upcoming 12 months. On a local currency basis, that contrasts with the multiple of the Stoxx Europe 600, which is approximately 13, and the multiple of the Hong Kong Hang Seng Index, which is about 10.

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