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International Stocks: Back in the Driver’s Seat?


Investors eye foreign markets and like what they see.

For more than a decade, international stocks have lost performance race after performance race to the U.S. equity market. Investors have shunned foreign stocks in the past few years due to the Russia-Ukraine war, China’s zero-Covid policy, and other concerns.

But lately, investors in overseas shares have stepped on the gas.

As seen in the chart, the MSCI All Country World ex-US index (which tracks developed and emerging-market foreign stocks) has beaten the S&P 500 by 17% over the past 12 weeks—the biggest such outperformance for the international index going back to 1999

International Stock Performance Vs. U.S. Stock Performance 

Source: Bloomberg, as of  1/24/23.(rolling 12-week spread)

Some key drivers of this recent international surge include:

  1. A weaker U.S. dollar. The dollar surged relative to other currencies last year, which translated to lower returns for U.S. investors in foreign stocks. Recently, however, the dollar has pulled back—closing at its lowest level (versus a basket of foreign currencies) since June 2022. The weaker dollar has relieved some of the downward pressure on overseas equities.
  2. China’s economic re-opening. China has lifted its strict Covid-19 quarantine requirements, allowing Chinese companies and consumers to re-engage with the global economy. This effective re-opening of the world’s second-largest economy may give a boost to foreign stocks going forward.
  3. Better-than-expected weather. The Russia-Ukraine war sparked fears of an energy crisis in Europe, which relies largely on Russian-controlled oil and gas. But a warmer-than-anticipated European winter thus far has eased those worries somewhat.
  4. Attractive valuations abroad. Even with their recent run-up, international stocks as a group remain relatively cheap—with the companies in the STOXX Europe 600 index trading at around 13 times projected earnings over the next 12 months, versus nearly 18 for the S&P 500, according to FactSet. That index of European stocks has traded at a greater discount to the S&P 500, only 6% of trading days since 2010. In the current high interest rate/tight monetary policy environment, valuations can be especially important.

Horizon has increased its international positioning recently and may continue to do so. Specifically, we are focusing more on Asia and emerging markets due to the potential growth impulse from China reopening and these markets’ relatively strong risk/reward characteristics. That said, risks for international stocks abound—including the potential impact of the Russia-Ukraine war, a bumpy road for China as it loosens its Covid restrictions, and the possibility that the Fed will keep interest rates elevated for longer than expected and contribute to a global economic slowdown. As always, we will monitor conditions closely to attempt to mitigate risks and pursue opportunities.


This commentary is written by Horizon Investments’ asset management team.

 Past performance is not indicative of future results.

The S&P 500 Index is a stock market Index tracking the stock performance of the 500 largest companies listed on stock exchanges in the United States. The MSCI All Country World ex-US index tracks developed and emerging-market foreign stocks. The STOXX Europe 600 is a stock index of 600 components representing large, mid and small capitalization companies among 17 European countries.

Information obtained from third party sources is believed reliable but has not been vetted by the firm or its personnel.

Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry, or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice, or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments.

The investments recommended by Horizon Investments are not guaranteed. There can be economic times when all investments are unfavorable and depreciate in value. Clients may lose money.

Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. All investing involves risk of loss, and in periods of market growth, risk mitigation strategies can be expected to lag in performance behind equity strategies that do not focus on risk mitigation.

This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. These opinions may not be reflected in all of our strategies. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent. Forward-looking statements cannot be guaranteed.

References to indices or other measures of relative market performance over a specified period of time are provided for informational purposes only. Reference to an index does not imply that any account will achieve returns, volatility, or other results similar to that index. An index’s composition may not reflect how a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which are subject to change. Individuals cannot invest directly in any index.

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