Is The Tide Now Shifting Toward International Equities?

Investors are starting to take notice of the international momentum story, at least as it relates to emerging markets. For example, the top gainer in exchange-traded fund (ETF) flows for the month of February 2017, according to ETF.com, out of the entire field of U.S.-listed ETFs, was the iShares Core MSCI Emerging Markets ETF (TickerIEMG), which pulled in $2.5 billion.

Drilling down further into country specific return shows an even more intriguing story as certain countries appear to be outpacing others within the two representative international market categories. Based on the chart below, with respect to the international developed market countries listed, Spain appears to be leading the way thus far in 2017 with a YTD gain of over 12%. Looking at international emerging market countries listed in the chart, Mexico has comes out of the gates strong with a 2017 total return gain of over 15% thus far.

Market results by nation

Source: Bloomberg. All returns are USD total returns as of March 17, 2017. Total returns assume dividends are reinvested in the index. 3 and 5 year returns are annualized using weekly return data while 1 year and 2017 YTD returns are actual using daily return data. Past performance is not indicative of future results.

There are many different market events that could slow down this international equities momentum including, but not limited to, the following:

• Ramifications of key upcoming political votes which could lead to other potential country exits from the European Union
• The exact timing and logistics of the expected departure of Great Britain from the European Union (a.k.a. “Brexit”)
• Any potential changes to existing trade agreements or policies
• Policy changes coming out of Washington DC that could further boost U.S. economic growth and consumption
• Interest rate activity on the part of central banks across the globe and relative currency valuations – in addition to the Federal Reserve’s 25 Basis Point increase to the Fed Funds Target Rate in the U.S. last week, the Bank of England (BOE) is now expected to considering nudging their own interest rates higher following a recent report showing that inflation registered at its highest level in 3 years in Great Britain
• Commodity prices
• Any short-term bouts of stock market volatility
• Unexpected political or military shocks in any one region that could lead to global unrest

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Disclosure: Hennion & Walsh Asset Management currently has allocations within ...

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