Goldman: European Stocks May Outperform US Stocks This Year

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European stocks are projected to beat US stocks this year, according to an article in Bloomberg yesterday quoting Goldman Sachs. From the article:

European equities will catch up to their U.S. peers once the uncertainty surrounding near-term elections is lifted, according to Goldman Sachs Group Inc.

The Stoxx Europe 600 Index will return 8 percent including dividends by end-2017, boosted by a weak euro, strong global growth and recovered oil prices, according to Christian Mueller-Glissmann, managing director of portfolio strategy and asset allocation at Goldman Sachs in London. The S&P 500 Index will return 4 percent, Goldman predicts, as optimism about economic growth in the U.S. fades and mutes the stock rally. The return forecasts are in local currencies.

“U.S. equities will net still be up, but less than Europe, which is catching up,” Mueller-Glissmann said in an interview at Goldman’s offices in London. “What is generating optimism in the U.S. right now are the tax cuts and fiscal spending, and both of those might be watered down over the course of the year. We have a pretty good set-up for Europe to do well.

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Source: Goldman: Europe’s Stocks to Return Double U.S. Equities in 2017, Bloomberg, Jan 29, 2017

After years of lagging their American peers, firms in Europe are in a better shape now and have better potential to deliver higher returns. Recently I posted the following chart from Schroder’s:

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Investors looking to diversify and gain exposure to European equities may want to consider adding high-quality stocks from the continent.In addition, the Callan Periodic Table of Investment Returns shows that no one country is the top performer consistently.

Update:

Source: Europe best placed for cyclical upswing, Money Observer

S&P 500 Highs Since Inception: Chart

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The Dow Jones hitting the 20,000 mark was big news in the media last week. While the Dow is popular, the S&P 500 is more representative of the broader US economy.

According to an article by Brian Levitt at Oppenheimer Funds, the S&P 500 has had 964 new highs since its inception in 1957. In 2016 alone it had 18 new highs.

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Source: Dow 20,000: We Did It!, Brian Levitt, Oppenheimer Funds

Which Emerging Countries Are Most Exposed To The US ?

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Global trade has become the focus of attention in recent weeks with President Trump’s proposed plan to implement 20% tariffs on good imported into the US from Mexico. Emerging countries depend on exports to developed countries since developed countries are major consumers of goods produced cheaply in emerging countries. Countries such as China are major exporters of goods to the US.

So with trade wars looming in the horizon, which emerging countries are most exposed to the US market?

Contrary to popular belief many emerging countries have limited exposure to the US. So American trade wars alone cannot submerge emerging market economic growth.

According to a report by Schroder’s China may not affected too much due to US actions since China’s exports to the US account for only 4% of its GDP. However Mexico will be highly affected by US tariffs as the country’s exports to the US amount to nearly 30% of its GDP. While China’s trade is more diversified especially with many Asian partners, US’ southern neighbor Mexico is strongly connected to the American economy.

The chart below shows the emerging countries most exposed to the US:

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Note: 

CNY – China
INR – India
MXN – Mexico
CLP – Colombia
RUB – Russia

Source: Schroders Economic and Strategy Viewpoint, Feb 2017

The report also notes that Brazil, Colombia and India are also less dependent on the US market.