With the stock markets in the US hitting all time highs almost every day, the question on everyone’s mind is when will the rally end and where else to invest to reduce risk in one’s portfolio.
Here is a recap of US economic data. All the signs point to improving strength in the US economy prompting the Fed to consider another interest rate hike next month. Unemployment and consumer confidence also look very favorable. In this report, we look at international markets and examine if things look as rosy as they do here in the States or will the economic weakness overseas continue into 2017.
At a macro level, Europe, Japan and China appear to be on a upswing entering 2017. Several factors could be contributing to this positive turn. Oil prices have been rising following OPEC’s production cuts. Populism, that threatened to upend Europe last year, appears to have died down. Economic growth in China seems to be rebounding as a result of looser lending and controls on capital outflows. Japan, benefitting from a weaker yen, is seeing its labor market tighten as economic growth surges following a decade of dismal growth.
All of this data does bode well for global growth and increases confidence amongst investors to step into international markets.
Future Wealth’s View
While things do look rosy all around internationally, problems persist in all of these countries. In Europe, rising anti-migrant feelings have been blamed on the sluggish economic recovery but population trends show that Europe actually needs more, not fewer, immigrants. This could cause a resumption of the populist movement and disruption across Europe. The upcoming French election could further drive the uncertainty. The key for investors is to look to countries that manage to integrate migrants as sources of future growth and gain some exposure to their assets.
China may be on the rebound but much of its growth could be tied to the debt bubble that may burst. We have seen this movie before in the US and the ending was not pretty. Japan’s surge in economic indicators could well be tied to the stimulus from last year and it could slip back into recession when the effects of the stimulus fade. The Japanese, much like other Asian countries, are notorious for their high savings rate, when in fact, what the country needs is increase in consumer spending to drive economic growth.
This brings us back to US markets and Trump’s tumultuous Presidency and the policies that will be rolled out in the coming months. With a roaring US stock market, money has been pouring in from bonds and international markets. The pickup in economic conditions globally and with company valuations in the US market getting to dizzying heights, one could argue that investing in companies in international markets with much more compelling valuations could be a wise move to mitigate risk at this time. Unless, the US stock market highs, being reported, is FAKE NEWS.