Should investors stay home or go global in 2017?
At Russell Investments, we’ve made the strategic case for a global outlook on investments for decades. However, the cause of global integration took some serious hits in 2016, most notably:
- Brexit, or the United Kingdom’s vote to leave the European Union
- Donald Trump’s surprise win of the U.S. presidential election, largely due to the continued promise to close America’s borders, and attacks on free trade deals such as the North American Free Trade Agreement (NAFTA), which he called “the single worst trade deal ever approved in this country,"1 and the Trans-Pacific Partnership
These are not isolated cases. From the Italian Referendum to looming presidential and parliamentary elections in France and Germany and the apparent rise of nationalism in mainland Europe, an anti-globalization sentiment is taking hold in several countries across the globe.
Does the growing anti-globalization trend undermine our strategic case for global investors? I don’t think so, and though there may be tactical considerations in the coming year, I believe that there’s not a strong case against international investment right now.
What does the current anti-globalization trend mean for investors?
Although current anti-globalization trend may leave some investors feeling wary, the case for global investment remains intact.
I believe our strategic case remains strong. Consider the depth of 50 years of global integration: Apple (the largest company in the world by market capitalization)2 is US-listed and US-headquartered, but it derives around 60% of its revenues from other countries. And Apple’s sourcing and manufacturing processes are truly global. The main competitor for its flagship product, the iPhone, is built by Samsung (of South Korea). Similarly, Jeep, along with the other quintessential “American” Chrysler brands, are now partially owned by Italy’s Fiat. In 2014, the companies merged into a holding company, Fiat Chrysler Automobiles, which is incorporated in the Netherlands, headquartered in London, and listed in Italy and New York.
These are just two (though there are multiple) examples illustrating just why, with the integration of global markets, only a global approach can access the full investment opportunity set.
It’s also important to consider whether markets are favorable for international exposure from the perspective of the U.S. investor.3
Given current market conditions such as seemingly overpriced U.S. stocks and the strength of the dollar, tactical considerations around global investment—i.e., some of Russell Investments’ model portfolio began 2017 slightly underweight in U.S. stocks, but overweight the dollar—may come into play as the details of portfolio positioning are worked out.
In our most recent issue of Communique, I further examine the stall in the global integration—including current market conditions, tactical considerations, our long-held strategic case on global investment diversification—and what it all means for investors.
To find out more insights and information on global investing against 2017’s altered political backdrop, read my full piece here.
1Source: Donald Trump quote from the first presidential debate, September 26, 2016.
2All statistics quoted in this article are based on December 31, 2016, unless otherwise stated.
3Although similar considerations apply for investors based elsewhere, the details of the analysis and the conclusions will differ in many cases. Space does not permit us to cover these perspectives here.