Investors, Find Bargains Overseas in 2018

Time to check your allocations. The bull run in the U.S. means the better valuations are abroad.

(Image credit: AntiMartina)

Global markets give U.S. investors the chance to broaden their bull market gains. “We like international stocks across the board,” says strategist Samantha Azzarello, of J.P. Morgan Asset Management. For a moderate-risk portfolio with 60% of assets in stocks, Azzarello thinks 21% of stock holdings should be invested internationally—15% allocated to developed markets and 6% to emerging markets.

After a long bull market here, investors are likely to have too much of their money riding on the U.S. And because most investors already have a strong home-market bias, the imbalance could be pronounced, says portfolio manager Kathryn Koch, of Goldman Sachs Asset Management. “Investors need to move beyond U.S. borders to where there are interesting growth opportunities at much better valuations,” she says.

In Europe, for example, major stock indexes have yet to return to their 2007 peaks, while Standard & Poor’s 500-stock index is 65% higher than its 2007 high point. Eurozone manufacturing activity is hitting six-year highs, unemployment is at an eight-year low, and corporate profits are growing. The MSCI Europe index returned more than 20% through October 2017 but trades at a price-earnings ratio of just 15, compared with 18 for the S&P 500.

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Portfolio manager Saira Malik, global stock chief at investment firm Nuveen, likes stocks that are tied to the growing economy in Europe. She recommends ING, the Dutch banking giant, traded here as an American depositary receipt (symbol ING, $19). Oakmark International (OAKIX), a Kiplinger 25 fund, has 57% of assets invested in Europe.

Emerging markets have rallied sharply since 2016 but are still in the early stages of a multiyear winning streak, says Kate Moore, chief stock strategist at BlackRock. She sees a broad-based earnings recovery in both new- and old-economy sectors, including tech, industrials and energy, bolstered by growing economies and business reforms. Still, she notes, average P/Es are below those of developed markets. She sees opportunities in markets including India, Indonesia, Brazil and Argentina. Investors who prefer to navigate risky emerging markets with professional help should consider Kip 25 fund Baron Emerging Markets (BEXFX).

Experts disagree on the prospects for Japan. The country faces demographic pressures from an aging population, which will keep a lid on economic growth. But Japan’s Nikkei index recently traded at a 21-year high. The bulls point to recent solid economic readings and companies that are major players in leading-edge trends, including electric and autonomous-drive vehicles, factory automation, and serving the emerging world’s burgeoning consumer class. T. Rowe Price Japan (PRJPX) is a solid choice for investors.

Anne Kates Smith
Executive Editor, Kiplinger's Personal Finance

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage,  authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.