SHAREHOLDER PERSPECTIVES

Why invest beyond the U.S.?

Sep 27, 2016
By BlackRock

It may feel safer (or at least familiar) to invest at home, but U.S. stocks have richer price tags and little room to run after an extended bull market, and Treasuries continue to offer paltry income.


There are three good reasons (at least) to invest beyond the U.S., according to Russ Koesterich, Head of Asset Allocation for the BlackRock Global Allocation Fund:

Homegrown “safety” has a cost

The S&P 500 is looking expensive relative to both its history and other markets. While not necessarily indicative of a market top, current levels have historically been associated with lower future returns. In contrast, most major markets outside the U.S. are trading at valuations at or below their historical average, as illustrated in the chart below.

VALUATION OF ASSETS VERSUS HISTORICAL NORMS
Attractive opportunities can be found outside the United States

Valuation of asset versus historical norms

Emerging markets (EMs)
are outperforming

EMs have started to recover and are outpacing developed markets year-to-date. Despite the rise, the data show valuations are still inexpensive, particularly on a relative basis.

Not just stocks

International investing goes beyond stocks. Some of the best-performing bond markets this year have been outside the U.S. EM debt has returned more than 10% year-to-date, as measured by the JPMorgan EMBI. With U.S. interest rates at record lows and rates in other developed markets increasingly in negative territory, it can make sense to look beyond traditional markets in search of yield.

Pablo Goldberg, Senior Strategist for BlackRock’s Emerging Markets Debt Team, agrees: “We are starting to see a more fundamental recovery in several EM economies that had been hit hard by the recent downturn, including China, Brazil and Russia. These economic green shoots, when combined with stronger technical factors, have driven both hard and local currency-denominated debt in these markets to double-digit returns as of the end of July. This rally is nowhere near exhausted, in our view.”

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