NEW YORK- Even though the US stock market continues a record-breaking rally that has sent the benchmark S&P 500 index up nearly 25 percent for the year, investors appear to be looking elsewhere for better values in the year ahead.
World stock funds brought in $8.2 billion in investor inflows over the last two weeks, breaking a losing streak that dated back to early September, according to Investment Company Institute data. US equity funds, meanwhile, lost more than $10 billion in outflows over the last two weeks, extending a retreat that has spanned seven of the last eight weeks.
The move into overseas stocks comes as economic fundamentals appear to be improving in parts of Europe and Asia while US growth looks to be slowing, drawing money away from a market that had been an outperfomer.
Even with the MSCI All World Country Index, which tracks global equities, nearing record highs set in January, 2018, fund managers and analysts say global stock markets still offer a better chance to outperform US stocks in the year ahead. The cite significantly lower valuations after failing to keep pace with the US equity market for much of the last decade.
“We’re starting to see a period where valuation is going to be the driver for future returns,” said David Marcus, chief investment officer at Evermore Global Advisors. He has been shifting more of his portfolio into European stocks such as Belgium-based medical lab equipment maker Fagron NV and French media giant Bollore SA.
The forward price-to-earning ratio for the broad Stoxx 600 index, for instance, is 15.4, well below the 19.3 forward P/E of the S&P 500, according to Refinitiv data.
Any narrowing of that large gap in valuations could be a driver, even for companies that have strong stock performance this year, said Thomas Banks, a portfolio manager for the Federated International Small-Mid Company fund who has been increasing his stake in European companies. – Reuters