blog

Latest from the Quantamize Blog

Why Investors Should Favor Buying International Stocks Over US Equities

Mar 11, 2019

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions
Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions

 

  • Investors should begin to consider the case for avoiding US stocks in favor of Asia, Europe, and emerging market equities, according to CLSA Asia-Pacific Markets strategist Chris Wood.
     
  • In an interview published by Barron’s this weekend, Wood discussed a slew of favorable conditions in Asia, Europe, and emerging market equities that should make the outlook in those regions more favorable than that of US equities.
     
  • The S&P 500 Index is trading near the top of its trading range, which was established by a double top last year, according to Wood. A short-term rally in US equities to start 2019 was expected due to the trading range bottom established in December 2018 trading, Wood discussed.
     
  • When asked, “What is your least favorite market?,” in the interview, Wood promptly responded with the US. Wood believes that US equities have benefited from 10 years of financial engineering due to efforts that followed the 2008 financial recession.
     
  • Wood explained further that the declining quality of earnings for US equities, reflected in declining tangible book values, could further drive a downturn in US stocks. Wood believes that growing goodwill and debt line items on balance sheets are propelling declining tangible book values in US equities.
     
  • Despite the rally in Asian stocks to start 2019, Wood feels it’s not too late for investors to buy into Chinese and other Asian stocks.
     
  • Wood sees a higher upside in Chinese equities than most because of his contrarian view on the country’s economic situation. In the interview with Barron’s, Wood discussed, “I don't think the Chinese economy is as disastrous as what people thought three months ago.”  
     
  • Wood is also paying close attention to Indian equities in 2019, although he believes they will underperform for the first 5 months of the year. Indian elections occurring in May, which Wood sees as the largest political event in Asia this year, will drive uncertainty and underperformance of Indian equities in April and May. Wood advised investors to, “add India on weakness,” explaining that, “It’s an opportunity to buy banks in India at the best prices.”
     
  • Relative underperformance of emerging markets was the biggest surprise in 2018, according to Wood. Wood explained that collapsed global oil prices and forced selling in China drove the poor performance of emerging market equities in 2018.  
     
  • Wood also explained his outlook for European equities calls for a Brexit resolution within the next 2 years and potential conflict between the European Union (EU) and Italy.
     
  • On the assumed basis of a Brexit resolution within the next 2 years, Wood suggests that investors acquire domestic United Kingdom companies in favor of the FTSE Index, which is full of UK-based exporters.  
     
  • Wood expects conflict between the EU and Italy to arise in the near future. Wood explains that current Italian gross domestic product per capita is no higher than it was during the formation of the euro. Wood foresees two events: Italy leaves the euro; or Europeans adopts more fiscal integration.

 

Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS
Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS