International and U.S. Stocks

Right now, the U.S. stock market continues a record-breaking rally. However, some investors believe that international stocks will outperform U.S. stocks in 2020.

During the last two weeks, world stock funds brought in $8.2 billion in investor inflows. As a result, stock funds broke a losing streak, which started in early September. Based on the information provided by the Investment Company Institute.

At the same time, U.S. equity funds lost more than $10 billion in outflow over the last two weeks. It is important to mention that problems started a long time ago, more precisely equity funds retreated for a couple of weeks.

The demand for overseas stocks increased as the U.S. economy is slowing down. As a result, investors are trying to minimize the damage by investing in European and Asian stocks.

Economy and stock markets

In the third quarter of 2019, the U.S. grew at a 1.9% annual rate. For example, in the first quarter, this year the economy increased by 3.1%. This data once more highlights the fact that the world’s largest economy is slowing down.

The European Commission expects the economy in the eurozone to expand at an annual rate of more than 1.2% in 2020.

Germany has the largest economy not only among the countries which are part of the eurozone but in Europe in general. In the third quarter, the economy grew by 0.1%. This information helped to alleviate fears regarding the risk of recession. During the previous quarter, Germany’s economy contracted 0.2%.

Another factor that will boost the overseas markets is the value of the U.S. dollar. As mentioned above, the U.S. economy is struggling, and this would affect the dollar. It means that the value of U.S. currency will decrease in the future. High levels of the dollar had a negative impact when it comes to the returns of investing in overseas markets.

Danton Goei is a portfolio manager of the Davis International Fund. He mentioned the major factor which convinced him to pay more attention to Asian stocks. Goei thinks that more attractive valuations would boost the interest for the stocks of the Asian companies.