As the markets continue to climb higher, many market pundits (including myself) have been warning of pockets of “irrational exuberance”. There are several bubbles in the market right now. It’s most noticeable when looking at a chart of a company’s share price or value. Red flags go off when the chart goes parabolic, suddenly moving up higher at a rapid pace.
But this week, I don’t want to focus on the pockets of the market that are potential bubbles. Let’s look at areas that aren’t. After all, bubbles are irrational and can last irrationally long.
Almost all international markets haven’t kept pace with the gains here in America. After the Great Financial Crisis, it took about six years for US stocks to regain their highs. Since then, they have spent much of the past 10 years hitting record levels. International markets have had a far different experience and has only recently seen their 2007 highs.
Looking at the broad-based large international markets, like Europe and Japan, their markets in particular have not even regained their 2007 highs. The broad-based MSCI EAFE, which includes countries from Europe, Asia, & the Far East (hence EAFE), is a popular index that consists of large corporations in Europe and Japan. It has seen a nice rise recently, but still hasn’t captured its former glory from over a decade ago.
Emerging markets, like China, Taiwan, South Korea, & India, have fared a little better. They recently reclaimed their 2007 highs. A little surprising given the region’s modernization and strong growth.
Commodities like oil, steel, and orange juice have also seen better days. This is even more shocking for me. Consumption for all these types of basic goods have been growing in the last ten years. Thanks to the improvements in China’s economy, commodity prices have seen a recent move higher but are still down over 60% since 2008.
The poster child of commodities has been oil. Huge improvements in technology (fracking) have changed the global demand/supply landscape. That has meant rough times for legacy oil companies that saw the value of the black gold in the ground become less valuable.
All these areas of the markets have their pros and cons, but the most promising area continues to be overseas markets. Many of the largest companies in both the indices I mentioned (MSCI EAFE and MSCI Emerging Markets) are multinational organizations with diverse revenues. It would be a disservice to disregard these massive conglomerates that hold influence and market share within their own industries. Tencent’s influence in the online gaming industry, Samsung’s influence in the telecom industry, Louis Vuitton’s influence in the fashion industry, and Alibaba’s influence in the e-commerce industry. I could go on, but I think I’ve made my point. When investing, you shouldn’t look for opportunities through a single-country lens. Expand your horizons a bit and you may be surprised.