January 8, 2019
In an acknowledgement of rising interest rates, global financial markets have de-rated. Non-U.S. markets, in particular, declined as dollar strength weakened foreign exchange rates and forced central bankers to crimp economic growth to maintain currency stability. Furthermore, growth stocks, which are justifiably priced at premium valuation multiples and whose cash flows can be long-dated, were the worst performers as rising interest rates caused multiple compression.
Where do we go from here?
Business uncertainty resulting from trade frictions will continue to put downward pressure on economic growth. As a result, investor confidence may remain fragile (recent price declines appear to reflect this). Concerns are unlikely to dissipate soon, but we contend that international growth stocks represent a good investment opportunity based on the following observations:
- We are closer to the end of a U.S. tightening cycle than the beginning.
- Should U.S. economic growth slow, international markets would look relatively more attractive.
- The U.S. equity market is more expensive (relative to international equity markets).
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The above commentary does not provide a complete analysis of every material fact regarding any market, industry, security or portfolio. Information, opinions and other market or economic information and data provided are as of the date of the commentary, unless another date is expressly indicated, and may change without notice. The manager’s assessment of a particular industry, security or investment is intended solely to provide insight into the manager’s investment process and is not a recommendation to buy or sell any security, nor investment advice.