It was no mere lazy summer stroll through the international markets in 3rd Quarter 2014. In fact, the numbers tell a tale of two international markets: the best of markets and the worst of markets (hat tip to Charles Dickens). The best markets were found in the emerging-market countries, specifically those in Southeast Asia, where prices surged upward with worldwide demand. Indonesia, Thailand, Philippines, and India experienced the greatest growth. Outside of emerging Asia, parts of Latin America showed some strength, with Brazil mustering the most (albeit the most volatile) growth.
As for the advanced markets, Japan began to improve once again on favorable policies. The worst of markets were found in other advanced markets, particularly Europe and especially core Europe, including Germany, France, and Italy. The United Kingdom turned in more upbeat economic numbers, but the prospect of Scottish secession greatly slowed momentum. The Eurozone economies are beginning to look stagnant, portending very tepid GDP growth in the immediate future. Markets reflected this pessimism in Europe with poor returns.
Overall emerging-market strength is likely to continue into 4Q2014, although sensitivity to advanced market gyrations may create volatility in otherwise strong emerging markets. The Southeast Asian countries look to have continued market strength. China is likely to also follow upward, given the managed economic soft patch they have been in. In contrast, the European market must be monitored for opportunities or further weakness. The prospect of a new European Central Bank policy to stimulate markets has yet to substantively impact market sentiment, but policymakers are serious about avoiding a lost decade of negative growth. We will continue to overweight emerging-market positions, underweight advanced-market positions, and seek our European positions on the periphery of the Eurozone in places such as Norway and Belgium, while diversifying further into Japan and even Canada for market stability and growth.
Michael D. McNiven, PhD, Managing Director and Portfolio Manager