Given the volatility we’ve seen in international equity markets since the start of the year, investors are now asking, “What’s next?”

While a strengthening U.S. dollar, rising U.S. interest rates, falling global commodity prices, and a slowing Chinese economy have all added to an uncertain investment outlook for the year, most of these concerns are increasingly well understood by markets and investors. And that underscores the potential for active managers to focus on opportunities (and cushion risks) based on the following factors:

• Europe’s economy continues to improve. The European Central Bank’s quantitative easing program is less than one year old, and should continue to be supportive of the broader economy. Valuations in many parts of Europe remain attractive, and we continue to find new investments in the region.
• Japanese companies showed significant progress with regard to corporate governance in 2015. In our view, they need to remain focused on returning excess cash to shareholders in the future. Cyclical companies with significant exposure to China’s fading investment boom likely will continue to struggle.
• Falling commodity prices are generally helpful for the developed world, particularly for consumer-related companies. China’s investment slowdown has had a dramatically negative impact on metals prices. Rising North American supply and political conflicts within OPEC have depressed oil prices for the past 18 months.
• China announced an important change to its currency regime in December 2015. In recent years, China has operated with a de facto peg to the U.S. dollar. As a result, China’s currency, the yuan, has appreciated, along with the U.S. dollar, relative to most other global currencies over the past two years. With the change in U.S. interest rate policy, China has signaled that it no longer desires a U.S. dollar peg, favoring instead tracking an IMF basket of currencies. A weaker Chinese currency could put additional pressure on the developing world and commodity producers.

Would you increase your allocation to international stocks based on these factors?

Vincent McBride is head of large-cap international equity strategy at Lord, Abbett & Co.