Surveying the international landscape, we see a variety of bright spots, as well as concerns, in every region. Below, we offer a brief overview of some of the positives and negatives — and we highlight potential areas of opportunity.
Europe: Bright spots dot dimming economy
As the European economy and stock markets stalled in 2014, previously stretched valuations have become reasonably constructive. In addition, we expect that the benefits of a weaker euro will start to improve struggling corporate profits by mid-2015. However, while the European Central Bank (ECB) has introduced additional stimulus to fight deflation and spur growth, bank lending has yet to pick up in a meaningful way, and credit growth remains weak. It appears the stimulus measures have lowered the incentives to initiate much-needed reforms, and we expect fiscal battles to continue in 2015, as Germany’s focus on austerity conflicts with the more pro-growth fiscal stance of the ECB and other countries.
Potential opportunities:
Luxury goods companies often have a number of attractive “E” (earnings) and “Q” (quality) characteristics, but historically their “V” (valuation) levels have been too high to offer attractive risk/reward profiles. Slower growth in China and the rest of the world has caused many companies in this industry to de-rate and, as a result, we are taking a closer look at this group.
-
The energy and financials sectors have both been under pressure recently, and this may potentially create other investment opportunities.
Japan: Arrows missing their mark?
We continue to believe that improving prospects for real long-term economic growth requires difficult changes. The important third phase of Prime Minister Shinzo Abe’s “three-arrow” economic revitalization program calls for structural reforms focusing on corporate governance, particularly as regulatory reforms have made slow progress.
Potential opportunities:
While mid-year price corrections have made valuations of certain higher-quality companies more appealing, we remain cautiously selective about opportunities in Japan.
China: Structural reforms, corruption crackdown hinder economic growth but could prove positive over the long term
Reduced discretionary spending indicates that the government’s crackdown on corruption has inadvertently hindered economic growth. However, we believe these measures will be positive in the long term, and the pressure this campaign has placed on some consumption sectors may have already peaked.
Potential opportunities:
As long-term investors, we look to take advantage of short-term events that may generate attractive investment opportunities. For example, student protests in Hong Kong negatively affected the retail, restaurant and hotel sectors in 2014, but they also resulted in some more attractive stock valuations.
Emerging markets: Negatives for one market may boost another
The downturn in the commodity cycle is having a negative impact on trade, and consequently economic growth, for resource-dependent countries such as Brazil, Russia and South Africa. However, lower commodity prices can benefit net importers of commodities — China, India and other Asian economies, for example — and also feed into lower inflation and raw material costs. Meanwhile, emerging market countries with large exposures to exports should benefit from weaker currencies against the US dollar.
In contrast, macro imbalances, including high current account deficits or inflation, have forced many economies — for example, those of Brazil and India — to tighten policies. Also, rising nonperforming loans are causing tighter bank lending standards, slowing credit growth and consumption.
Potential opportunities:
-
Korea, Taiwan and Thailand could see benefits if global trade improves.
With slower growth, corporations are cutting capital spending. While this is a negative for job growth, it is also leading to increasing free cash flows and rising dividend payouts and yields.
Valuations are becoming attractive in select markets.
For more information, visit our International Growth page.
Important information
The risks of investing in securities of foreign issuers, including emerging markets, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
The performance of an investment concentrated in issuers of a certain region or country is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.
Clas Olsson
Senior Portfolio Manager, Managing Director CIO of Invesco’s International Growth Investment Management Unit
Clas Olsson is chief investment officer (CIO) of Invesco’s International Growth Investment Management Unit and a senior portfolio manager with the Invesco International Growth team. Mr. Olsson is a lead portfolio manager on the Invesco International Growth strategy and the Invesco European Growth strategy.
Mr. Olsson began his investment management career in 1994 as an investment officer and portfolio analyst specializing in international equities with Invesco. He was promoted to portfolio manager in 1997 and assumed his current role as senior portfolio manager in 1999 and CIO in 2009. Prior to joining Invesco, Mr. Olsson was a communications officer in the Royal Swedish Navy.
A native of Vasteras, Sweden, Mr. Olsson became a commissioned naval officer at the Royal Swedish Naval Academy in 1988 and earned a BBA degree in 1994 from The University of Texas at Austin.
Read more articles by Clas Olsson on Invesco blog.
The information provided is for educational purposes only and does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
NOT FDIC INSURED |
MAY LOSE VALUE |
NO BANK GUARANTEE |
All data provided by Invesco unless otherwise noted.
Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail products and collective trust funds. Invesco Advisers, Inc. and other affiliated investment advisers mentioned provide investment advisory services and do not sell securities. Invesco Unit Investment Trusts are distributed by the sponsor, Invesco Capital Markets, Inc., and broker-dealers including Invesco Distributors, Inc. PowerShares® is a registered trademark of Invesco PowerShares Capital Management LLC (Invesco PowerShares). Each entity is an indirect, wholly owned subsidiary of Invesco Ltd.
©2015 Invesco Ltd. All rights reserved.
