Overseas Investing

Bernstein offered that the slowdown in equities probably won’t be as dramatic outside of the U.S. largely because many overseas markets didn’t have as big an upswing in price appreciation. And he noted the Chinese central bank is now easing on interest rates as other central banks are tightening, while Japan historically has been a safe haven.

“There are different ways to think about what’s going on,” Bernstein said. “When you think about commodities, why not look at commodity related markets whether they be emerging or developed. That could be Canada or Australia, or Brazil or Chile. You have to accept the notion that the world is changing, so the leadership among nations will change as well,” he said.

Cameron Dawson, chief market strategist at Fieldpoint Private Securities, is more cautious about jumping on the international bandwagon.

“We haven’t been willing to go overweight in international and emerging markets yet,” she said. “We acknowledge the story about demographics and where the growth comes from in the world, which is certainly the emerging markets. But we use the charts to tell us what the market thinks about those stories on a real return basis. And the challenge we have is that when you look at the relative performance of international developed or emerging market indexes they are in distinct and unrelenting down trends versus the U.S. You have brief moments of outperformance, and then it rolls over.” 



She noted those down trends have been in place for 12 years for developed and 15 years for emerging markets. She acknowledged the favorable valuation differences for non-U.S. markets versus the U.S. market during the past five years, but doesn’t believe the valuation differentiation by itself is enough of a catalyst for international markets on the whole.


Another challenge Dawson sees in international markets, particularly in emerging nations, is a declining trend in governance.

“One of the big drivers of the E.M boom in the early 2000s was it was going from poor governance to good governance and that could be a strong driver of earnings, while at the same time you had China industrializing and you had a weak dollar and a blow-off top in U.S. stocks,” she said. 


“I think there’s still a good argument for having [international and emerging markets] in a portfolio for diversification,” she added. “But we think it’s too early, and until you see the whites of their eyes in this relative performance trend we’re willing to be patient because without that we fear we could continue to be caught in a value trap.” 

On the domestic front, Dawson sees downside risk from the U.S. consumer.