This could be the year for international investments.
Foreign equities have the opportunity to outperform U.S. stocks in 2021, three market analysts said Thursday. Developed and emerging markets are so far outpacing the S&P 500 year to date, with China in the lead:
Global vs. emerging market gains in 2021
| Global markets | 2021 gain | Emerging markets | 2021 gain |
|---|---|---|---|
| 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 U.S. stocks outpacing their international peers, “you’re starting to see signs of the market rotation,” Jeremy Schwartz, global head of research at WisdomTree Asset Management, told CNBC’s “ETF Edge” in a Thursday interview. “But there could be a long way to go.”
Emerging markets “now have some of the best growth opportunities” on the market as they trade at relative discounts, Schwartz said. With the dollar weakening and a new, perhaps more trade friendly Biden administration taking power, their catalysts are only adding up, he said.
“As we open, the international cyclicals I think can do well,” he said.
Chinese technology stocks could also give the U.S. juggernauts “a run for their money” with their high rates of innovation, cheap share prices and fast growth, Schwartz added.
“When you think about the U.S., it’s really tech-dominated and that shutdown economy is doing well for U.S. tech,” he said. “Those EM tech giants can be the rivals to U.S. tech giants over the long run.”
Bryon Lake, head of Americas client ETF at J.P. Morgan Asset Management, doubled down, calling valuations overseas “extremely attractive.”
“We saw some of the biggest drawdowns last year, and so we are expecting that snapback,” he said in the same “ETF Edge” interview, adding that “China is contributing heavily” to the recovery trade.
Lake recommended an actively managed approach to investing abroad, flagging JPMorgan’s International Growth ETF (JIG), a basket of 50-70 stocks with a nearly 15% weighting towards China.
“One of our concerns is that the major benchmarks on the international side are heavy banks and heavy energy whereas we’re more positive on areas like clean energy, semiconductors and luxury goods, so, we do think there will be some differentiation with that,” Lake said.
Professional investors have also taken interest in international assets, ETF Trends and ETF Database CEO Tom Lydon said in the same “ETF Edge” interview.
“We survey thousands of advisors every week and they are very bullish on international markets, very bullish on emerging markets,” he said, echoing that Chinese stocks have “great upside opportunity” in the Biden era.
One area of international investing that often goes overlooked could have the most 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 expressed concerns about fixed-income investing in the U.S. and also have talked about the opportunities for dividends or getting that income in the form of dividends by buying international markets, which are very, very attractive today.”
