Skip to main content

Sound Advice: July 6, 2022

Should international markets be of interest?

Although the U.S. stock market always seems to be on center stage, investing in international markets has continued to grow, especially since the arrival of exchange-traded funds (ETFs), which greatly simplify the process.  It’s no longer a matter of trying to ferret out the details of important companies and untangling the differentials in local currencies.

The simplest of all ways to invest abroad is to buy broad-based, exchange-traded funds that track the performance of specific countries or regions.  The broadest coverage of all would be IXUS, the iShares Core MSCI Total International Stock ETF.  Similar funds are available from Vanguard, Fidelity, and others.

A narrower focus is available through EFA, iShares MSCI EAFE ETF.  EAFE stands for Europe, Australasia, and Far East.  Then there’s EEM, which is an ETF for emerging markets, IEV for Europe, EWJ for Japan, and FXI for China.  There are numerous others, but the essential ingredient in all cases is a substantial level of trading to ensure that there’s a ready market for buyers and sellers.

Over time, these ETFs have typically had valuations 20% or more below those of the U.S.  There have been extended periods when they substantially outperformed domestic stocks and others when they lagged far behind.  In the half decade prior to 2022, when the U.S. market soared, foreign markets were far behind.

So far this year, however, the picture has brightened for investing abroad, but the undervaluation persists.  Even so, an interesting differential has developed.  With one exception, the international ETFs noted above turned in similar returns.  The exception was the pattern of FXI, the ETF for China, which perhaps due to the country’s strict lockdown approach to the pandemic experienced a far steeper market downturn until early spring this year.

Then things changed, China’s economy started to perk up and so did FXI.  Unlike the other international ETFs and the Standard & Poor’s 500 Index, all of which are still far down in the teens for the year to date, FXI has climbed from a shortfall of more than 20% in early May to a deficit of only 5% in current trading.

Given what may be viewed as the more limited transparency of international companies and contrasts with non-U.S. accounting methods, the leaner valuations abroad are understandable.  Still, there are more than a few parts of the world where the future growth rates will exceed those of mature economies.  More rapid growth often goes hand in hand with stronger market returns. 

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

 203-222-9370

 www.soundasset.com

www.soundasset.blogspot.com

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: March 10, 2021

The ABCs of Stock Picking After decades of analyzing stocks (and funds) and investing for clients, I'm happy to share in plain English what's involved, what works, and what doesn't.  Keep in mind the reality that successful stock picking is an effort to maintain a good batting average. In baseball, a batting average of .300 or better is considered quite good.  With stock picking, you need to do better than .600, which means you have many more winners than losers. No one gets it right all of the time.  It's not even close.  Wall Street shops all have their recommended lists and the financial media regularly hawk 10 stocks to buy now. Following that road usually is a direct route to disaster.  Don't be tempted. Let's begin with the big picture: The stock market goes up and down over time, but the long-term trend is up.  When there's a rally under way, everyone feels like a genius.  When the market hits an air pocket, though, with few exception...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more