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US stocks have outperformed their global counterparts for more than a decade, but that streak may soon end, with the COVID-19 recession accelerating that shift, Lisa Shalett from Morgan Stanley reports.

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Key quotes

“China’s recovery leads other major economies by as much as a year. It is the best performing region – the MSCI China Index is up 17% this year – due to a strong pick-up in global trade, despite the overhang of trade tensions with the US. The renminbi is strengthening relative to the dollar, which should support China’s strategy of turning it into an international currency that is held by more central banks.” 

“Most emerging markets are linked to China and will benefit from the weaker dollar and the stronger renminbi. So far, emerging markets have lagged strong gains in commodities, which is unusual and could indicate that they are underpriced. These markets could also benefit from the Federal Reserve’s plans to keep interest rates low, even as inflation trends upward.”

“Europe not only boasts more reasonable stock valuations, but its COVID-19 relief plan could be a game-changer. Europe’s recovery plan could bring about greater fiscal integration across the region and provide much-needed aid to the southern periphery. The plan also provides funds for green energy projects that should create jobs, while fighting climate change.”

“Japan offers attractive valuations, ongoing economic transformation and an important break in dollar/yen correlations. Indeed, the yen’s still nascent weakening against the dollar could help boost its exports, which would become more competitive. It also helps that Japan has the lowest level of unemployment and the lowest mortality impact from COVID-19 of any developed country.”