Every Monday for nearly a year, I’ve been sharing my views of various markets around the globe. Since many investors have asked me how I come up with these country calls, I thought I’d provide a glimpse into my analysis approach.
I lead a team at iShares called the Investment Strategy Group that helps me decide whether to hold an overweight, underweight or neutral view of a specific country. While we closely track investor sentiment, our views on how markets are likely to perform over the next 12 months are primarily based on a rigorous analysis of macroeconomic fundamentals.
We focus on how macroeconomic factors related to economic growth, corporate sector profitability and risk tend to get priced into country valuations. As proxies for expected future growth, we look at factors like leading indicators and consumer confidence, while we study return on assets as a proxy for future profitability. We also look at market volatility as a proxy for risk.
Based on our research, I’m generally underweight countries where prevailing macroeconomic conditions cannot explain high — or expensive — valuations, and I’m typically overweight countries where prevailing macroeconomic conditions cannot explain low — or inexpensive — valuations.
The chart below summarizes all of my outstanding country calls. You can read more about these views in my latest Investment Directions piece.
|European Equities (ex-Germany/Nordic Countries)||X||IEV|
|United States||X||EUSA, IYY, IWV, ISI, IVV|
Disclosure: Author is long EWC, IEV, EWG, EWH, EWN, EWS
This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research, investment advice or a recommendation regarding the iShares Funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client.
International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments and securities focusing on a single country may be subject to higher volatility.