Daily Management Review

Global Stocks Could Outperform The U.S. in 2020


Investors are leaning towards global market which might not be in the favour of the U.S. stock market in 2020.

The stock market in the U.S. is enjoying a “record-breaking rally” while sending the “S&P 500 index” to nearly twenty percent high in the year. However, investors seem to be still in the lookout for “better values” elsewhere for the coming year.
Over the period of last few weeks, world stock funds saw an inflow of “$8.2 billion” from the investors which changed the “losing streak” that had prevailed from the month of September, states the “Investment Company Institute data”. On the other hand, over the last few weeks, the U.S. equity funds saw an outflow of “$10 billion”, whereby adding to the retreat period which is continuing for nearly two months.
The attention turned towards “overseas stocks” is a proof of Europe and Asia’s improved economic fundamentals, while the U.S. experiences a slow growth. Furthermore, the “MSCI All World Country Index” says that analysts as well as fund managers are of the opinion that there is a good chance of the global stock markets outperforming the U.S stock in 2020. The Chief Investment Officer of “Evermore Global Advisors”, David Marcus said:
“We’re starting to see a period where valuation is going to be the driver for future returns.”
The Refinitiv data claims that the “forward price-to-earning ratio for the broad Stoxx 600 index, for instance, is 15.4, well below the 19.3 forward P/E of the S&P 500”, reported Reuters. Thomas Bank also informed that narrowing down the valuations gap could act as a driver which would application even to the companies that enjoyed “strong stock performance this year”.
While, Banks also added:
“Some of the higher valuations for U.S. shares has been warranted because the U.S. had a much faster growth rate. But going forward if there’s a trade deal announced or an amicable solution to Brexit, the divergent growth rates could converge again”.
The economic growth of the U.S. in its Q3 has been at “1.9%”, while in the Q1 it was at “3.1%”. According to the European Commission, the euro zone’s growth is expected at “1.2% over the course of 2020”. The biggest economy of euro zone, Germany saw a Q3 economic growth at “0.1%”.
If the U.S. sees further drop in growth rate then it would affect the “value of the dollar”. The Davis International fund’s Portfolio Manager, Danton Goei informed that Asian stocks along with “multi-national companies” are seeing “more attractive valuations” to benefit from “domestic consumption in India and China”.
In the words of Goei:
“You can see that the trade war has had a very limited impact on their businesses and yet valuations have come down a lot because of the macro concerns. When you have very strong businesses and their valuations are falling for unrelated reasons, that appears like a good buying opportunity”.
“The big difference in valuations obviously matters in terms of your likelihood of outperforming in the future”.