Global Investors Shift Focus Amid US Market Volatility
As the US stock market experiences its largest monthly loss since September, global FTX investors are shifting their gaze towards European and emerging market assets. The persistent inflation and the Federal Reserve’s interest rate policies have prompted a reconsideration of investment strategies that were once buoyed by high-performing US equities.
Legal & General Investment Management’s CIO, Sonja Laud, emphasizes the growing importance of diversification, signaling a preference for European shares over their US counterparts. Similarly, Amundi, Europe’s largest asset manager, is taking protective measures against potential declines in US stocks by purchasing put options and reallocating funds from US Treasuries to eurozone bonds.
The allure of European markets is partly due to their composition of value sectors like banking and energy, which are less affected by rising borrowing costs. Pictet Asset Management’s chief strategist, Luca Paolini, supports increasing exposure to Europe, citing a favorable macroeconomic outlook for these undervalued cyclical markets.
Concurrently, the tech sector, which has been a significant driver of the S&P 500’s returns, faces headwinds from sustained high-interest rates. A notable example is the sharp decline in Meta’s share value in April, underscoring the risks associated with betting on tech growth in a high-rate environment.
In the fixed income space, Treasury bonds have also taken a hit, with an index of Treasury bonds dropping significantly in April. This has led investors like Amundi’s Derambure to increase holdings in eurozone government bonds while anticipating a more favorable environment for US fixed income in the future.
Emerging market bonds are gaining traction as well, with countries like India, Indonesia, and Vietnam expected to exhibit robust economic growth. LGIM’s Laud expresses optimism about Indian bonds, particularly in light of their upcoming inclusion in a major debt index and the country’s booming economy.
Despite these shifts, diversifying away from US assets presents challenges due to the high correlation between the Stoxx and S&P 500 and the influence of Treasuries on global debt markets. However, investment professionals like Carmignac’s Frederic Leroux believe that opportunities for outperformance can still be found beyond US borders.
As the investment landscape evolves, businesses are also adapting. The introduction of services like
