Although we’re definitely not in the 1960’s, go-go is a fitting term to describe international markets this year with returns of almost 20% year-to-date. Developed markets, of which Europe comprises the largest block, have seen growth that now outpaces ours in the U.S. The Eurozone has now seen its highest rise in output in the last five years and its unemployment rate is lower than it was before the financial crisis.
International markets got two green lights this quarter as both growth and currency values continued to improve. There has been some concern that currencies like the euro and British pound have appreciated a bit too much, threatening to make their goods so expensive abroad that exports take a hit. While that could deal a blow to large exporters, like Germany, any change will be slow moving, subject to change at any time, and Europe’s stock markets are still relatively inexpensive. This portends higher relative returns going forward when compared with others, like the U.S.
There was also plenty of good news for these markets. Portugal, one of the sicker countries of the EU after the downturn, regained an investment-grade rating on its bonds. Italy saw its employment rate grow to the highest level in 10 years. But not everything was rosy (it never is). In France, thousands marched against some of Macron’s proposed rules for labor and Britain is struggling through the Brexit talks.
Looking at Asia, Japan is still bogged down in deflation but a lower yen should help with exports. Earnings of Japanese companies have also been coming in stronger than in the U.S. In all, it seems that there are still fewer headwinds for international stocks than there are for the U.S. and that will hopefully lead to continuing strength in their stock prices.