Can Global Stocks Bounce Back? | Adviser Investments

Can Global Stocks Bounce Back?

This week’s reader question is about global stocks:

What is your thinking on investing in international stocks? Will slower vaccine deployment abroad have an impact on valuations?

We’ve been asked this a lot lately. The question is a smart one because you’re focusing on global stock valuations as opposed to recent performance; this suggests a long-term mindset—which is the key reason we think foreign stocks are worth investing in this year and beyond. It’s Diversification 101, yes, but it also recognizes that some global business leaders aren’t necessarily domiciled in the United States.

Depending on one’s ability to accept higher risk for the potentially higher reward that comes with it, we generally recommend holding 20% to 30% of your portfolio’s equity allocation in foreign stocks, which is still considered an underweight to the global benchmark.
The charts below illustrate three factors that underpin our current overseas outlook: Vaccinations, performance and valuations.

Note: YTD Returns are for each country’s MSCI index. Price/earnings (p/e) ratios are measured by each country’s MSCI index’s price divided by its 10-year average real earnings per share. Vaccination and returns data are through 4/27/21; p/e ratios are through 3/31/21. Sources: Bloomberg, Johns Hopkins.

It is important to remember a lesson we learned last year: The stock market is not the economy. This applies to the stock market’s composition, of course, but it also implies that investors and traders are forward-looking. In other words, stock and bond investors will look past short-term weakness in the economy and will price assets in anticipation of an eventual recovery.

Last fall’s battered cyclical stocks (small-caps, banks, leisure stocks) began to rally ahead of vaccine authorizations and rollouts. Emerging from the pandemic this spring, U.S. stocks seem to have priced in a full recovery and then some. To state it plainly, there are few underpriced opportunities in the U.S. market.

Meanwhile, foreign stocks offer a chance to buy low. And, if reopenings stutter out of the gate, any volatility could provide more opportunity as prices dislocate from fundamentals.

Dark times continue for countries struggling to vaccinate, but we believe the light at the end of the tunnel is bright. Plus, we aren’t simply buying markets. In our core strategies, we partner with active managers who are selecting individual companies that happen to be based in foreign countries. And our tactical strategies act as guides to where there are opportunities and risks.

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Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit or call 800-492-6868.

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