Investors seem to be taking their money and investing in equity markets outside the United States (including China) despite Wall Street's record-breaking run in November.
Last week, which was Thanksgiving week in the U.S., saw a continuation of Wall Street's historic run with the Dow Jones Industrial Average, S&P 500 and the NASDAQ Composite closing at new records in five of the past eight sessions. The three major indices have been on a tear over the past month due to optimism around phase one of the stalled U.S.-China trade talks. The Dow has risen 4.3%, the S&P 500 by 4.1% and the NASDAQ by 5 against.5%. The benchmark S&P 500 index is up some 25% for the year.
The leading pan-European equity indices last week also traded at highs last seen in 2015. The pan-European STOXX 600 index improved 0.32%. Japan's Nikkei rose 0.28% while most other Asian markets improved on hopes of a trade deal.
On the other hand, Chinese shares fell as weak industrial profit data highlighted the intense downward pressure on China's economy being inflicted by slowing consumer demand, tighter credits and Trump's trade war.
Analysts said world stock funds saw an investor inflow of more than $8.2 billion over the past two weeks. This surprising surge ended a losing streak extending back to early September. On the other hand, U.S. equity funds lost more than $10 billion in outflows over the last two weeks. This extended a retreat that began eight weeks ago said the Investment Company Institute (ICI). Based in the U.S., ICI is a leading global association of regulated funds (including mutual funds), exchange-traded, funds, closed-end funds and unit investment.
Analysts said a slowdown in the U.S. economy has led investors to move into overseas stocks. They note economic fundamentals appear to be improving in parts of Europe and Asia. Forbes pointed out that for at least five weeks straight, investors have withdrawn $27 billion from mutual funds and exchange-traded funds that specialize in domestic U.S. securities.
The action, which looks like a lot of investors are bailing on the future of America's economy, comes just as Wall Street stocks keep breaking records.
The U.S. economy grew at a 1.9% year-on-year i n the third quarter,far lower than the 3.1% during the first three months of the year. The European Commission expects the eurozone economy to expand at an annual rate of 1.2% in 2020. Market analysrta are less optimnistic than the EU and predict growth rates will continue to fall from 4-year lows in 2018 but not grow at the EC predicted rate.
MSCI, which compiles influential indices tracked by thousands of fund managers and is used as benchmarks to measure the performance of portfolios, also confirms the fund inflow into non-U.S. markets. Last week, thge MSCI global gauge of stock markets rose 0.35% and was a only 1 point shy from its all-time high of 550.63 posted on January 2018.
Its emerging markets index also improved on the hopes the U.S. and China might finally be close to signing a phase one deal to signal the beginning of the end of their 16-month trade war. The MSCI All World Country Index that tracks global equities, is nearing record highs set in January 2018.
Fund managers concur global stock markets still offer a better chance to outperform U.S. stocks in 2020. They cite substantially lower valuations in global stocks, which have failed to keep pace the with U.S. equity markets for much of the last decade.
"We're starting to see a period where valuation is going to be the driver for future returns," said David Marcus, chief investment officer at Evermore Global Advisors. Marcus has been shifting more of his portfolio into European stocks of late.
The forward price-to-earning (PE) ratio for the Stoxx 600 index is 15.4, well below the 19.3 forward P/E of the S&P 500, indicating significant room for earnings growth.
