Some U.S. investors are looking abroad to capture better stock returns in the coming months, betting European and other international stocks hold more enticing valuations after a long period of U.S. dominance.
U.S. stocks have rebounded to start the year after a rough 2022, but still have lagged their international counterparts. Europe's STOXX 600 index
“Relatively speaking, we have got more money now chasing better opportunities outside the U.S., which was not the case the last several years,” said Martin Schulz, head of the international equity group at Federated Hermes. That period largely coincided with rock-bottom interest rates, a backdrop that favored U.S. stock indexes which are far more heavily weighted in technology shares than stock gauges in Europe. The tech sector amounts to 26% of the S&P 500. The group is only about 7% in the STOXX 600, which is far more heavily geared toward financial and industrial shares.
The firm last month rotated more into international equities as it increased its overall stock exposure, de Longis said.International stocks were recently touted by investor Jeffrey Gundlach of DoubleLine Capital and BofA Global Research, which projected global stocks would "crush" their U.S peers in 2023.
Another lift for international stocks has come from the recent weakness in the dollar, which is down some 9% since the end of the third quarter after a huge run. The weaker greenback benefits U.S. investors when they convert foreign profits back into their home currency, and some investors believe the dollar could keep sliding if it appears the Fed is growing closer to pausing its rate increases.
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