Grantham on International stocks

[chang]

Depending on what you think of Grantham, this might be of interest. I am overweight foreign compared to most everyone else.

www.gmo.com/americas/research-library/the-great-paradox-of-the-u.s.-market_viewpoints

Excerpt:

”2: Non-U.S. Equities and Real Estate

”If things are so good, why on earth is the rest of the world so down at heel, with very average economic strength and average profitability and with both getting weaker? The UK and Japan are both in technical recessions; the EU, especially Germany, also looks weak; and China, which has done a lot of the heavy lifting in global growth for the last few decades, is pretty much a basket case for a while (although getting very cheap in its stock market). Global residential real estate looks particularly tricky also, although it often takes a very long time for prices to catch up or down with mortgage costs. Can any young couple in the developed world today buy a new home comparable to those bought at the same age by their parents? Peak prices as a multiple of family income multiplied by an old-fashioned looking mortgage rate (now 6.8% in the U.S.) makes for a very tough affordability calculation. And as for office space, forget about it. With the double problem of higher rates and Covid-induced work-from-home, no one is confident of anything, no one will build anything new, and all sit holding their breath as appraisals start to come down and bank loans to commercial property look increasingly dicey. And in China, extreme overbuilding threatens both housing and commercial real estate.

”Throw in a couple of wars that refuse quick endings and rising possibilities of expanded military confrontations with Russia and China, and you can see why the rest of the world is sober and much more reasonably priced than the U.S. (Understanding U.S. optimism is much more difficult.) To be more precise, I would say that in contrast to extreme overpricing of U.S. equities, those overseas are a little overpriced, offering uninspired but positive returns. The positive exceptions to this general, moderate overpricing are at the value or low-growth end of emerging market equities and non-U.S. developed equities (including Japan), which are not only much cheaper than the high-growth varieties but are selling in a range from fair price to actually cheaper than normal.

”GMO has a particularly soft spot for Japan, where we are optimistic that they can continue their recent slow-but-steady improvements in their version of corporate capitalism. Additionally, we are very confident that the yen will sooner or later gain 20% or even 30% against the dollar.

”Finally, in the last few months, non-U.S. stocks have begun to perk up a little, even as the U.S. – in the midst of its AI bubble – vaults onwards to near unprecedented heights. Japan especially has been a strong recent performer. Fundamentally these have much more room to run than the U.S., with much less risk when the bubble bursts.”

[win1177]

Chang,
I also have started adding a little to foreign/ international. Added yesterday to VFWAX in wife’s account, added to VIAAX in my IRA. May add some more to International in my brokerage account soon. The difference in valuations in the US versus foreign looks like it has to “correct”. But time will tell, international has clearly underperformed for a long time.

Win

[bb2]

Happened to catch a guy on TV yesterday who said he'd seen corporate change in Japan lately. More willing to pay attention to share price and act to raise it. I'm going there in the fall - should be interesting.

[Deleted]

I have started adding little to CGGO - American Funds Global Growth ETF (50% US, 50% INTL - mainly developed).


American Funds are like Primecap in that they never seem to do really outstanding well and generally never really bad. Always solidly in middle.

And that worries me that I leaving returns on table in exchange for perceived safety.

[bigseal]

Reading Grantham is a total waste of time. I generally see no benefit in international investing.

[chang]

Mar 13, 2024 12:45:21 GMT bigseal said:

Reading Grantham is a total waste of time. I generally see no benefit in international investing.

Look at the graphs on p. 1 and p. 6 of the attachment to this post: big-bang-investors.proboards.com/thread/1289/investing-borders-hitchhikers-guide

[retiredat48]

Mar 13, 2024 12:45:21 GMT bigseal said:

Reading Grantham is a total waste of time. I generally see no benefit in international investing.

There was a decade long period around year 2000 where international beat USA stock market, and in particular Emerging Markets was the top leader in performance in 4 of five years at one point.  Very large gains.  Best seen on Callan Periodic Charts from back then.

R48

[steadyeddy]

Recency bias drives many investors to believe the US stock market is KING. Given the valuations & concentration risks with S&P500, it is only prudent to diversify into international.

I am shifting all new money into xUS.

[bb2]

When internation outperforms, seems it's when US falters, not when International shines. China has more troubles than we do. I'll stick with US till this changes.

US is wealthy. Smart people from everywhere come here for school. Bio-tech and tech are here; (though China's no slouch).

Also, International investing means you're relying on a manager or an ETF, which includes a bunch of crap.

www.lazardassetmanagement.com/us/en_us/research-insights/the-current/the-great-rotation/can-us-stocks-continue-to-outperform

[gman57]

Mar 13, 2024 21:48:49 GMT steadyeddy said:

Recency bias drives many investors to believe the US stock market is KING. Given the valuations & concentration risks with S&P500, it is only prudent to diversify into international.

I am shifting all new money into xUS.

I don't buy it....    as per below.... around 60% of the time it doesn't beat the US market. Right now it looks like Japan and India are the place to be from what I've been reading.... good luck.

"According to BlackRock, international stocks have outperformed U.S. stocks in more than 40% of all 10-year rolling time periods over the past 50 years. However, U.S. equities have outperformed international equities over the past decade according to FactSet and MSCI."

[Deleted]

If I do meaningful allocation to international it will be intl without China.

I read an article with data in ft or wsj that for US investors US treasuries have given better returns than Chinese stocks.

[retiredat48]

As posted before, during past two years I exited all China holdings and currently will not invest in China.

R48

[roi2020]

Mar 14, 2024 4:27:40 GMT @waffle2 said:

If I do meaningful allocation to international it will be intl without China.

I read an article with data in ft or wsj that for US investors US treasuries have given better returns than Chinese stocks.

I'm a firm believer in allocating part of your portfolio to international stocks.

Ben Carlson makes a case for international diversification here.
The Chinese economy grew tremendously after the country joined the World Trade Organization (WTO).

However, foreign investors earned miniscule returns during this period of unprecedented growth.
The level of Chinese government interference with locally domiciled companies/industries is a major detriment for me.

[chang]

Mar 14, 2024 7:43:34 GMT retiredat48 said:

As posted before, during past two years I exited all China holdings and currently will not invest in China.

R48

I followed you out (in 2021, actually) but at the start of this year opened a very small posish in FSEAX. Using PyrUp I added to it when the first investment rose 10%. The manager wrote this in his last commentary:

"In 2023 the Chinese economy expanded by 5.2%, exceeding the official target of 5.0% and improving on a 3.0% uptick in 2022 amid various support measures from Beijing and a low base comparison from the prior year. Excluding the pandemic years through 2022, the 2023 GDP growth is the slowest annual pace since 1990, underscoring the impact of a prolonged property crisis, persistently weak consumption, and global turmoil.

"Over the long term, however, we remain positive on China, and believe the worst of the property crisis has passed. We also look for the country's authorities to expand stimulus measures if the economy continues to struggle. Given these considerations, we moved from a sizable underweight in China as of September 30, to a modest overweight by year-end. Proceeds for this allocation shift came from reduced exposure to stocks in Taiwan – our largest underweight as of year-end – and South Korea, as well as other markets.

"Our focus continues to be on areas of the Chinese economy that the government appears determined to support, such as technology, medical services and equipment, in addition to certain consumer segments. Accordingly, consumer discretionary, health care and information technology were the fund's only sector overweights at the end of 2023 whereas the other eight were underweights of varying degrees."

[Norbert]

Matthews Asia MSMLX is an attractive foreign fund, investing in EM smaller companies.

It's about 29% China. I don't have a problem with China exposure as long as we're talking about an actively managed fund. No market-cap driven indexes in this sector.

I see no reason to avoid investing in good overseas companies, particularly now. Remember that investing is far less common in many countries, whereas it's the national sport in the US. So, prices and valuations tend to be higher in the US than elsewhere.

Yes, US stocks have outperformed for several years, which tells us nothing about future years.

[Capital]

I have about a 15% International standard allocation in my portfolio. My EM allocation is ex-China.
I do not like the political situation in China; nor, do I like their ownership structure for foreigners.

[gman57]

I stay with the US market. I forgot who said it, Buffet or Bogle (I think) , but their reasoning was that many large US companies get up to or more than 50% of their revenue internationally so you're already getting plenty of international economic exposure.  ADD: I did the this country, that country ETF's once upon a time. Mostly after reading articles about how this country or that country was peaking in wealth generation demographics etc...(Brazil, South Korea comes to mind) but no more.

[win1177]

I have about 9% in International currently, but plan on slowly increasing that to around 15%. The us market has clearly been the “place to invest” for a long while, but US equity valuations are pretty high/ rich, and I suspect we are due for a reversion to the mean. I do think having US multinationals (large cap stocks) gets you a fairly good “chunk” of foreign stocks (maybe 20-30%?), but I want to bring ours a little higher. Foreign stocks as a group are cheaper, and I think have a place in our portfolio.

Win

[steadyeddy]

It is true that most multi-national companies domiciled in the USA derive revenue/profits from xUS geography. Likewise, a lot of xUS companies derive revenue/profit from the US as well.

The key point is valuations - I am not trying to convince anyone that xUS is worthy of investing.

Also, while most of the world is down-beat about China prospects, I am reasonably upbeat on China as a contrarian buy.

[howaya]

In regards to business investment flows, internationally:

"In September this year, the Boston Consulting Group, a global management consulting company, said more than 90 per cent of the North American manufacturers it surveyed had relocated some production from China in the past five years — and a similar percentage plan to make such moves in the next five years.

And these firms are moving their operations to India, Mexico, and Southeast Asia. "Mexico, Southeast Asia, and India are quickly emerging as future export manufacturing powerhouses," the firm said. "All three offer competitive cost structures, deep pools of labor, and growing scale and capabilities across diverse industries. India has the additional benefit of possessing a potentially enormous domestic market."

www.businesstoday.in/latest/economy/story/exclusive-us-japanese-firms-moving-their-manufacturing-ops-from-china-to-india-says-deloitte-south-asia-ceo-408636-2023-12-07

I've read India's valuations are already pretty high but I am not aware if they are now unreasonable. Vietnam and Mexico appear to have strong positive multi-year trends with more upside. Multinationals with moats that have a history of respectable ROIC appear to be the safer bet than a pure international fund, but I keep staring at EWW anyway due to Mexico's many near-shoring strategic advantages

[Deleted]

I checked valuations of other countries except China. Most are overvalued. Where did you folks see that INTL is cheap?

[johntaylor]

As to stocks, now roughly 4 percent Japan, 3 percent UK, 2 percent China, 2 percent France, 2 percent Canada, 2 percent Germany