Chart of the Week

Weekly chart using economic data to address timely market topics from the Wells Fargo Investment Institute Global Investment Strategy team.

July 17, 2019

Tracie McMillion, CFA, Head of Global Asset Allocation Strategy

Chris Haverland, CFA, Global Asset Allocation Strategist

Michael Taylor, CFA, Investment Strategy Analyst

Veronica Willis, Investment Strategy Analyst

The Importance of International Investments

The Importance of International InvestmentsSources: International Monetary Fund, as of April 30, 2019. Actual data through December 31, 2018; forecast data through December 31, 2024. Dotted lines represent International Monetary Fund estimates for years after 2018. For illustrative purposes only. Excerpt from “2019 Capital Market Assumptions: Strategic Asset Allocation Recommendations” (July 2019).

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Share of global output, as measured by gross domestic product (GDP)

As the chart shows, the percentage of economic activity outside the U.S. has been growing over time. Global economic cycles that differ from U.S. economic cycles create the potential for investors to earn positive international (developed and emerging markets) returns, even when the U.S. economic cycle winds down.

In our view, investors should consider maintaining exposure to international markets to help boost return potential over a full market cycle. At the same time, we foresee that the historical ebb and flow in the U.S. dollar’s value could generate some periods of dollar strength that may detract from international returns. On balance, we believe the long-term opportunity to exploit broadening and widespread international growth justifies the potential currency risk within a diversified portfolio.

What it May Mean for Investors

While our strategic asset allocations still favor U.S. equities over international, we believe that global economic performance that is unsynchronized with the U.S. economy may produce opportunities to earn positive international returns when the U.S. economy struggles. If international economies succeed with economic reforms, their markets may merit expanded allocations in the coming years.

Risk Considerations

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

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