Two New Country Views for a Two-Speed Global Economy

February 21, 2013

Given this divergent growth, I continue to advocate investing in emerging markets, where growth should be stronger, over developed markets. In addition, for investors looking for domestic plays on this same theme, I also like certain segments of the US market that offer more emerging market exposure like technology, energy and mega caps.
-Russ Koesterich, chief global investment strategist, iShares

If recent economic data is any proof, the global economy is still stuck in a two-speed regime. Developed markets like Europe, Japan and the United States are stalling and struggling to shake off their post-crisis economic slump, while China is re-accelerating from its 2012 slowdown.

Given this growing discrepancy in the global growth environment, Iím amending my views of two countries:

  • The Netherlands. Since August 2011, Dutch stocks have gained roughly 19% in dollar terms and have outperformed a broad European benchmark. However, Dutch valuations no longer look particularly attractive compared to those of other European markets amid signs that local fiscal austerity is contributing to economic contraction. Because I believe that Europe will continue to struggle with its ongoing recession, as evidenced in its recent weak fourth-quarter gross domestic product numbers, the Netherlands is vulnerable to more growth disappointments. Given this, Iím downgrading my view of the Netherlands to a benchmark weight.

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