The Investing Opportunities We See Outside the US

Transcript

Ken Fisher:

Not everybody seems to understand this, but this has been a year where, the initial forecast of how countries would go that we made at the beginning of the year has worked pretty well. It's been a year where US has lagged, Europe as a region has led—some individual countries otherwise stronger— but overall, the non-U.S. world doing markedly better than the US.

Now, this is in contrast to the last couple of years where, if you average time over the last couple of years in 23' and 24', US was pretty much the top of the pack in the world. Of the 47 countries in the MSCI World Index over that period of time, if you span shorter periods together and average them over the two years, US is bouncing around from number one to number four. But now, we're bouncing around, depending on currency, between about number 37 and number 42 out of the 47. And regionally, Europe has been particularly strong, with the exception of Denmark, Western Europe, almost across the board, has been strong—some little more, some little less, based on what happens inside those countries, obviously.

But for example, Mexico has been strong; Canada has been doing better than we have; China, in particular, has been doing better. But across the world of the countries outside the US, it's been a non-US world, and partly, that's been driven by, on the one hand, flight of capital from America associated with fear of how the tariffs would impact America. And as we've said from the beginning of tariffs, tariffs always impact the country that imposes them more than the countries they're there imposed upon. And I'm not going to go back and retread that turf, because we've said it over and over again, over prior months, in a lot of different ways, a lot of different places. But it's true, and you can see that in the stock market because, going through half a year where you go a dramatic shift from US largely beating the world to US largely lagging in the world, is pretty good poof by itself.

But on top of that, another feature that we've written about and that is contributing to that also, that people don't understand, is that the financial structure of the world, in terms of the willingness of banks to lend, has shifted heavily in favor outside of America. If you look at cost of bank deposits versus rates at which banks can lend. All of that has improved over a year ago, but it's improved much, much more outside America than inside America, and particularly, again, so in Europe.

Now, this is important for how countries perform, because the countries that are more overweighted in banks and more overweighted in industrials, which is basically Europe, are ones that react better to a more favorable lending position for banks because A, the banks do better because they make more money when the cost of deposit base is low, and they can use that for longer term loans, pick up the spread. And also, the Industrials need access to bank capital to become more aggressive growers in a world they're not— the value stocks and value stocks, generally, are not able to raise capital readily in other ways the way growth stocks are.

So, traditionally, when banks become more ready to lend, more eager to lend and lend more, that favors Industrials. But that's, again, Europe in particular. The US is heavily overweight in Tech and Tech-like Telecommunications, and so, we've talked about that in these videos for years, and when that category will lead the world, America tends to be strong. America is not as strong in these others. America's got a little bit everything, America is the most diverse economy in the world, but this period particularly favors non-US stocks.

And so, that forecast from the beginning of the year is pretty good. I hope this is useful for you, but again, if you're not seeing that—if you're not seeing that, just get out one of these kind of devices and just look up foreign country indexes year-to-date. And you'll be—you know, you can, with most of these things, you can look at them over a year-to-date, you can look at them over six months, three months, 10 years, any way you want.

But this year, it's particularly abundant if you do that—that you'll see US is lagging, non-US is leading, Europe as a region is stronger than other regions as a whole, and other individual countries, as mentioned before, kind of stand out, with only a few of the 47 and the MSCI All-World Index collecting America. So, thank you very much. I hope you found this educational useful.

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