Investors who think that developed markets can deliver strong returns if China’s economy collapses will be painfully off the mark. Fortunately, we don’t foresee a complete meltdown for China. The world’s quintessential emerging economy also includes pockets of opportunity for investors with a longer time horizon and the stomach for near-term volatility.
After last year’s rally, European equities trade at elevated valuations; a strengthening EU economy and meaningful earnings growth will be the key to further appreciation. We take profits on a number of names we highlighted last fall and highlight our top three European stocks for the coming year.
Despite the precipitous selloff of emerging-market equities, the group’s long-term growth story remains intact. We highlight the best strategy for patient investors looking to add exposure to this theme.
Investors looking to profit from the changes under way in Japan’s economy should focus on the beneficiaries of Prime Minister Shinzo Abe’s “three arrows” of fiscal stimulus, monetary easing and structural changes to the labor market and economy. Our favorites: real estate, financial stocks and drugstores.
After three years of underperforming, Asia’s emerging markets could surprise to the upside in 2014. Not only have equity markets discounted the structural challenges that these nations face, but also the bar of expectations for regional economic growth and stock markets remain quite low.
Central banks' accommodative monetary policies, coupled with accelerating economic activity in the US and the recovery under way in the eurozone, should benefit emerging markets, especially those that rely heavily on exports to these regions.
Our outlook for global economic expansion bodes well for equity markets, especially those that have lagged over the past 12 months. We prefer emerging markets that have a current account surplus and significant exposure to global trade.
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