Against the grain: Are international stocks due for a rebound?

Timely insights from portfolio managers and industry experts on key financial, economic and political issues.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness.

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      By Edward J. Perkin, CFAChief Equity Investment Officer, Eaton Vance Management

      A contrarian take on the market

      Boston - Mae West may have been right about many things, but not markets.

      Investors have been rewarded for favoring U.S. stocks over other regions for the past decade. There are many reasons to like the U.S. with its relatively strong economy and plethora of innovative growth companies. It would be easy to conclude that one should stick with what has been working rather than to rebalance into what has lagged.

      However, when indexes become imbalanced by too much of a good thing after a long period of outperformance, they often mean revert. Technology stocks grew to 29% of the S&P 500 Index at the end of 1999. Over the following decade, the other sectors in the S&P 500 beat the technology sector by 61% cumulatively, 7.8% annually.

      At the end of 1989, Japanese stocks had become an astounding 39% of the MSCI World Index. Again, investors would have been well served to rebalance into the better opportunities offered in other countries as non-Japanese developed market stocks outperformed Japanese equities by 366% cumulatively, 16.5% annually during the decade that followed.


      Bottom line: As a new decade gets underway, what will the regional performance of the 2020s look like? Mean reversion and the graph above suggest that international stocks may be the place to be.