The French elections are now in the rear-view mirror, and global investors are breathing a sigh of relief. Voters in France elected Emanuel Macron who will become the youngest French leader since Napoleon Bonaparte. But unlike Napoleon, Macron has pledged to work with his European neighbors to create a stronger European Union. The election went counter to a couple of recent elections, which had some calling this the ‘age of populism.’
Brexit and last year's U.S. elections had investors worried about a growing trend toward new trade and immigration restrictions. But the French elections and smaller elections in Germany and the Netherlands have eased these concerns. The results have removed a large source of uncertainty for the European Union and strengthened the viability of the single currency unit associated with it. The euro moved above $1.10 immediately following the election, a level not seen since November of last year.
IMF Increases Their Global Growth Predictions
Economists had already been increasing their global growth predictions prior to these election results. The International Monetary Fund (IMF) raised its outlook for global growth in mid-April, citing an uptick in global trade. And the election of the pro-globalization Macron should give the IMF further confidence in their relatively rosy forecast. In the April edition of their World Economic Outlook, IMF economists forecasted a global growth rate of 3.5% in 2017 compared with 3.1% in 2016.1
According to the IMF report, this increase in global GDP will be driven by an increase in global trade volumes, which are predicted to expand 3.8% in 2017 after growing 2.2% last year. Demand from China, whose economy grew at 6.9% in Q1 of this year, will be the driving force behind much of this growth in trade. China has been working to move their economy away from a reliance on exports and cheap manufacturing by creating internal demand. Earlier this year China reported its first trade deficit in three years and recent data showed China's imports increased by almost 12% in April.2
In my opinion, an emerging middle class in both China and India will continue to be the growth engine for the global economy.
Is Your Portfolio Global?
So what does all of this mean for U.S. investors? First and foremost, it stresses the need to review your portfolio to see how internationally diversified it is. While the U.S. markets have been a great place to be over the past few years, as shown in the table below, many of the foreign equity markets have actually outperformed the U.S. markets this year.
||YTD Market Increase
(Shown in local currency)
|YTD Market Increase
(Based in U.S. dollars)
Source: Bloomberg as of 5/15/17
And when you factor currency changes for investors with a base currency in U.S. dollars, every one of the major foreign equity markets has outperformed the Dow Jones in 2017.
You've probably noticed that we tend to beat a consistent drum of diversification here at EverBank. We firmly believe in spreading a portion of your investment portfolios into non-U.S. markets. For those investors who still have all of their investments tied up right here in the USA, the French election may provide some impetus to look overseas for a portion of their portfolio. Opportunities are everywhere; you just need to look for them.