The equity leadership transition
As we enter the seventh year of the US bull market, we have likely reached a tipping point where international equities could begin to generate superior returns to US equities.
12 March 2015
The link to the full analysis can be found at the bottom of this page, but in summary, there are a number of factors that make a powerful case for non-US equities.
Firstly, the outperformance of US equities in recent years has in no small part been a reflection of a competitive and flexible US economy when compared to the more rigid labour laws of other countries, especially Europe. However, this may all be about to change as a combination of wage restraint in Japan and Europe, and the recent strengthening of the US dollar, has had a dramatic effect on relative labour costs and served to improve the competitiveness of these two major regions.
We are already seeing the evidence of this change in competitiveness reflected in economies’ and corporates’ growth rates. Cost competitiveness is helping companies to grow market share (sometimes at the expense of US competitors) and exports are accelerating in both Europe and Japan. Meanwhile, the stronger dollar is beginning to inflict some pain on corporate America and this is only set to worsen as a significant part of the currency appreciation has been very recent.
Figure 1: Average hourly wages – US and Japan (in US dollars)
Important Information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.