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Forbes
01-05-2025
- Business
- Forbes
Why US Stocks Could Continue To Trail International Equities
Background stock market and finance economic. getty A commonly heard quip of economists throughout the post-war era has been, 'When America sneezes, the rest of the world catches cold.' This refrain also applied to the 2008 Financial Crisis and the Covid-19 pandemic, when the U.S. economy and stock market far outperformed its international peers (see chart below). This adage, however, does not apply to the current trade war. During the first 16 weeks of this year, the U.S. stock market underperformed international markets by the widest margin since 1993, according to the Financial Times. The MSCI USA index lost 11 percent, while the MSCI international index rose 4 percent in dollar terms. An 8 percent weakening of the dollar against a basket of six key currencies including the euro and yen was a contributing factor. US versus International Equities MSCI Bloomberg The U.S. stock market's underperformance is widely attributed to investors' expectations that President Trump's tariff blitz will contribute both to a slowing of the U.S. economy and to higher U.S. prices. This reflects a sea-change in expectations from the start of this year, when investors anticipated that the U.S. economy would be bolstered by tax cuts and deregulation. The shift in expectations is apparent in the IMF World Economic Outlook published last month. The IMF's projections now call for U.S. real GDP growth to slow from 2.8 percent in 2024 to 1.8 percent this year, down from 2.2 percent in the prior forecast in October. The IMF's projected slowdown for the U.S. is the largest for any advanced economy, and it is expected to be accompanied by a surge in U.S. inflation to 3 percent, a full percentage-point increase from the January forecast. If so, this outcome would indicate that the massive tariffs President Trump is contemplating would inflict greater damage on the U.S. economy than on other industrial economies. This begs the issue of whether the U.S. economy might prove resilient to tariff increases, just as it did to Fed rate hikes in 2022-2023. First quarter GDP results released by the Bureau of Economic Analysis showed how the economy fared just before President Donald Trump's 'Liberation Day' announcement on April 2. During the quarter, real GDP contracted at a 0.3 percent annual rate, which heavily influenced by the response of U.S. businesses to pending tariff hikes.. The main factor contributing to the decline in real GDP was a surge in imports of 41 percent at an annual rate, as businesses built up inventories in anticipation of higher import prices due to tariffs. By comparison, exports rose at only a 1.8 percent rate. The steep plunge in consumer confidence readings this year was accompanied by a slowing in consumer spending to a 1.8 percent annual rate from 4 percent in the fourth quarter of last year. However, business fixed investment surged at a 22.5 percent rate, as companies appeared to be front-running tariffs according to the Wall Street Journal. Overall, domestic demand rose at a 3 percent annual rate. The full brunt of the tariff hikes is likely to be felt in the next two-three quarters, as supply-chain shortages take hold. The longer the trade war persists, the greater is the risk that a recession could unfold at some point, which is not yet reflected in stock prices. Meanwhile, the U.S. stock market has stabilized following President Trump's announcement on April 9 that reciprocal tariffs would be suspended for 90 days for U.S. trading partners. The principal exception is China, where the tariff rate was boosted to 145 percent in response to Chinese retaliation. Looking ahead, the case for international markets to outperform the U.S. market hinges on three considerations. One is that international equity markets, and especially European markets, are considerably cheaper than the U.S. stock market even after taking into account the greater weight in technology stocks in the U.S. For example, the average P/E ratio for international stocks over the past decade was more than 20% lower than the U.S. average. By comparison, the current discount for European equities is more than 35 percent according to Bloomberg. Second, President Trump's stance on national security issues and on tariffs has been a catalyst for European countries to boost defense spending and to undertake other initiatives to bolster their economies. Germany's stock market received a boost when newly elected Chancellor Friedrich Merz won lawmakers' approval in March for an ambitious plan to loosen the nation's strict debt rules for higher defense spending and to set up a large fund to finance public infrastructure. The stock markets for Germany, Poland and Spain, in turn, have posted double-digit returns so far this year. Third, the backlash to President Trump's tariffs and national security stance has also resulted in a marked decline in the dollar this year, even though interest rate differentials have widened in favor of the dollar. This has raised the specter that there could be crisis of confidence in the dollar at some point, as I have discussed previously. Meanwhile, the status of the U.S. as a safe haven is being questioned. Finally, in the event the trade war leads to a rupture in global trade patterns, equity market correlations could decline after they rose steadily during the era of globalization. If so, investing in international equities should provide greater diversification benefits than was evident in the past 25 years.
Globe and Mail
29-03-2025
- Business
- Globe and Mail
Riding China's Economic Rebound: ETFs in Focus
By the end of 2024, U.S. and Chinese equities—tracked by the MSCI USA and MSCI China indices—ended up with fairly similar returns. But how they got there couldn't have been more different. So far in 2025, their paths have diverged even further: the MSCI China Index is up nearly 20%, while the MSCI USA Index has slipped into negative territory. China's Economic Repositioning While the Trump administration's trade policies are having a major impact on global equity markets, responses from national and regional governments are also shaping the landscape. In China's case, after a strong fourth quarter in 2024 —when GDP grew 5.4% year-over-year—the government laid out its 2025 economic goals. These include a more proactive fiscal policy, a supportive monetary stance, and a focus on boosting domestic consumption and driving high-quality growth through innovation. The emphasis on domestic consumption stands out, especially given the current tariff environment, which is slowing Chinese exports—a sector that accounted for nearly a third of the country's growth last year. To encourage consumer spending, the Chinese government plans to support ' reasonable growth ' in wages, explore a system for adjusting the minimum wage, consider childcare subsidies, and ramp up investment in areas that directly support consumption. Is it time to invest in Chinese equities again? Leading Chinese equities have seen strong gains this year, driven in part by recent economic policy announcements from the Chinese government. As the chart below shows, companies like Xiaomi, Alibaba, and BYD have outpaced many of their peers in 2025. Still, challenges remain. China continues to grapple with real estate sector debt, which is weighing on household confidence and the broader economy. On top of that, any escalation in U.S.-China trade tensions—especially under Trump's renewed 'America First' stance—could pose serious risks to Chinese businesses. As the world's second-largest economy, China plays a vital role in the global economy. With Trump's 'America First' policies causing economic reverberations across the globe, it could open the door for renewed economic cooperation among countries, creating avenues for growth. Investing in China via ETFs For Canadian investors seeking exposure to Chinese equities, the iShares China Index ETF (Ticker: XCH) and the BMO MSCI China ESG Leaders Equity Index ETF (Ticker: ZCH) provide exposure to the region. XCH tracks the FTSE China 50 Index, which comprises the 50 largest and most liquid Chinese stocks, while ZCH tracks the MSCI China ESG Leaders Index, which reflects the performance of securities that have been assigned higher ESG ratings by MSCI relative to their peers and targets 50% of the market capitalization within each sector. The Index excludes securities of companies that earn significant revenues from tobacco, alcohol, gambling, conventional weapons and civilian firearms, any controversial weapons, significant generation of nuclear power as well as companies involved in severe business controversies. As of February 28th, 2025, XCH's year-to-date return has been 15.90%. XCH's primary holding is the iShares China Large-Cap ETF (Ticker: FXI), whose top holdings include Tencent, Alibaba, and Meituan. For ZCH, the year-to-date performance as of February 28th, 2025 is 19.44%, whose top holdings include Tencent, Alibaba, and China Construction Bank Corp. Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
Yahoo
14-03-2025
- Business
- Yahoo
Top ISA fund picks ahead of the new tax year
As the end of the tax year approaches, experts say it could be worth reviewing the investments in your individual savings account (ISA), to make the most of your annual allowance. This tax year ends on 5 April, meaning the maximum annual allowance of £20,000 that you can put into an ISA will reset the day after. That means investors still have a little time left to use any of remaining allowance by topping up this tax-free savings pot. Hal Cook, senior investment analyst at Hargreaves Lansdown (HL.L), said: "This is a great time to review your ISA investments. You might still have some of your ISA allowance left. If so, then perhaps you could consider using it to make your ISA more diversified." He explained that funds can be good way to diversify your investments but that it's important to make sure they are truly different. Read more: Stocks that are trending today "The problem is that determining exactly how diversified your portfolio is not always as easy as you might think," he said. "For example, an investor could buy a global fund, a US fund and a technology fund where there could be more overlap in these funds than it seems." The MSCI World index (^990100-USD-STRD) currently has a 74% exposure to the US, while this goes up to 90% for the MSCI World Information Technology index. In addition, the MSCI World and MSCI USA (^984000-USD-STRD) indices have 25% and 31% exposure to the technology sector respectively. All three of these indices also have the same top three investments — Apple (AAPL), Nvidia (NVDA) and Microsoft (MSFT). "So, although you are buying three seemingly quite distinct funds, in reality there is a big overlap in the underlying holdings," Cook said. "The important thing for all investors is to understand exactly what they own, whether they have a concentrated portfolio or not, and if they do, that they are happy with the risks that poses," he said. Myron Jobson, senior personal finance analyst at Interactive Investor, noted that this season had been marked by volatility, fuelled partly by US president Donald Trump's trade war. "But investors should not be swayed by short-term turbulence," he said. "Investing is a long-term endeavour, and history shows that those who remain patient and stay the course tend to be rewarded. Time in the market is what truly counts." With that in mind, analysts suggest the following funds could help with diversification, depending on what investors are looking to add to their ISA portfolio. One option that Hargreaves Lansdown's (HL.L) Cook said could be of interest to investors is the BNY Multi-Asset Balanced (0P0000X8S2.L) fund, which focuses on companies with solid long-term prospects from around the world, using bonds and cash to offer some diversification. The fund, which has returned 6% over one-year and nearly 24% over three years, aims to achieve a balance between capital growth and income over the long term. While top holdings include a couple of the major tech companies — Microsoft (MSFT) and Alphabet (GOOGL, GOOG) — there are also key positions FTSE 100 (^FTSE) firms, including business information giant Relx (REL.L) and oil major Shell (SHEL.L). "Most of the fund (typically 70-80%) is invested in shares, and [fund manager Simon] Nichols favours established companies with competitive advantages that often pay a dividend," said Cook. "Nichols likes companies that pay a dividend because of the discipline that this puts on company management teams." Another fund on Cook's list is Baillie Gifford Monthly Income (0P0001HCBD.L), which aims to provide an income return that increases by more than the consumer prices index (CPI) — a key measure of inflation — over time. The fund has generated a return of 3.4% over one year, which is slightly ahead of January's UK CPI reading of 3%. Over a long-term horizon, the fund has produced a much stronger return of 33% over five years. The top position in the fund, as of the end of February, was a UK Treasury bill, which is a government bond with a short time until it matures. Stocks: Create your watchlist and portfolio Apple (AAPL) and Microsoft (MSFT) feature in the top 10 holdings but there are a number of more traditional businesses also in that list, including healthcare property business Assura (AGR.L) and industrial fastener distributor Fastenal (FAST). "The managers invest in three broad categories of investments: shares, real assets and bonds," said Cook. "The real assets section of the fund is made up of companies listed on the stock market, which means most of the fund is usually invested in shares." "The focus on income means that returns are often different to peers who have a greater focus on growing capital," he added. "This makes it a great option to diversify a portfolio of investments over the long-term." Cook said that the Schroder Managed Balanced (0P0000JWBZ.L) fund is a highly diversified option, as it uses a "funds of funds" approach to investing. This refers to when managers mainly invest in other funds, rather than individual shares or bonds, which means the total number of securities in the portfolio is large and in this case, stood at around 3,500 as of the end of January. "Even though the fund is highly diversified, it has a focus on shares, which makes it higher risk than some peers," Cook said. "Because the fund is so diversified, decisions around what regions and asset classes to invest in tend to have a bigger impact on performance than the individual choices around what companies to invest in," he added. "The managers have a lot of experience in running this fund and thinking about asset allocation though, so we think they are a great option for long-term investors." The fund has returned nearly 5% over one-year, but over five years generated a return of 41%. For those looking to get exposure to bonds in their ISA portfolio, Alex Watts, senior investment analyst at Interactive Investor, puts forward the Invesco Sterling Bond (0P0001DKA2.L) fund as an option. "As geopolitical tension, a far-from-resolved inflationary picture and concerns regarding government spending across developed economies continue or even worsen in 2025, government and corporate bond yields remain heightened," he said. Read more: The highly-rated defence stocks investors are buying up Government bonds sold off globally last week, which was sparked by an announcement from the incoming German government of plans to revamp debt rules to boost defence and infrastructure investment in Europe's largest economy. This prompted the yields — effectively the interest rate return on these investments — to rise. The Invesco Sterling Bond fund invests in corporate bonds, which is debt issued by a company. "The managers look both at the fundamentals underlying an issuing company, as well as taking top-down view to guide positioning," said Watts. "The fund invests heavily in bonds issued within the financials-sector, with around 40% of the portfolio held in bonds issued by banks and insurers, then followed by utilities and telecoms." "The fund's yield of around 4.8% is attractive and [fund manager Michael] Matthew's approach has been well proven, with total returns over the long-run being impressive versus both peer group and the fund's benchmark." For exposure to emerging markets, Tom Bigley, fund analyst at Interactive Investor, highlighted the Goldman Sachs India Equity Portfolio fund. "Over the past decade the Indian economy and stock market has seen substantial growth and is now one of the most highly valued markets in the world, despite a pullback in recent months," he said. India's Nifty 50 (^NSEI) is down 11.7% over the past six months, with overseas investors pulling out of the market, amid concerns around slowing economic growth and higher valuations. Read more: How to invest in the Indian stock market While the Goldman Sachs fund is down 1% over one-year, it has returned nearly 118% over five years. "The fund invests in sound businesses of all sizes, preferring companies with strong competitive advantages and low or decreasing competition," said Bigley. "Company meetings are a crucial part of the process and the fund management team's ability to meet companies on the ground in India differentiates it from many competitors." Top holdings include Indian multinational bank ICICI Bank Ltd ( and IT firm Infosys Infosys ( Bigley pointed out that not only has the fund outperformed the MSCI India IMI index in four of the past five years, it has also beaten this index and peers over five and 10 years. For investors looking for a sustainable fund pick, Bigley pointed to the Janus Henderson Global Sustainable Equity (0P0001HG2J.L) fund. "Sustainability is central to the process," he said. "For a company to be considered eligible at least 50% of their revenues is required to be aligned with the team's 10 positive impact themes, which are mapped to the UN Sustainable Development Goals. This results in a subset of companies with long-term compounding characteristics and support from structural growth drivers." Read more: European stocks performing well amid US volatility While the top two holdings are Microsoft (MSFT) and Nvidia (NVDA), other key positions include healthcare services company McKesson (MCK) and energy management firm Schneider Electric ( "With its disciplined investment process and sustainability focus, this fund could be a compelling choice for an investor seeking to expand the core global equity exposure in their portfolio." said Bigley. The fund has produced a return of 3.5% over one year but has returned 94% over five years. Overall, when building an investment portfolio Interactive Investor's Jobson emphasised that diversification is key when building an investment portfolio. "This means owning a range of different investments — across asset classes, styles, and regions — to help reduce risk," he said. Read more: The most popular stocks for investors in February UK trade department warned over growth as Trump's trade war looms Bitcoin price rises as US inflation cools despite trade warSign in to access your portfolio
