Money Never Sleeps: The Case for Global Investing
In the words of Gordon Gekko: “Money never sleeps, pal.”
In our 24/7 interconnected global economy, you should pursue profits in every corner of the world. Global diversification is always a good idea, as underscored by third-quarter 2021 corporate operating results so far.
According to the World Bank, the United States accounts for about 55% of the world’s stock market value. That means 45% (more than $40 trillion) resides overseas. In fact, 80% of the world’s publicly traded companies are foreign based, compared with 20% headquartered domestically.
So what are Q3 numbers telling us about growth prospects internationally?
The blended (combines actual results for S&P 500 companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the S&P 500 for Q3 2021 is 32.7%. Those are the latest numbers, released this week, by research firm FactSet.
For companies that generate more than 50% of sales inside the U.S., the blended earnings growth rate is 26.3%. For companies that generate more than 50% of sales outside the U.S., the blended earnings growth rate is 44.3% (see chart).
The blended revenue growth rate for the S&P 500 for Q3 2021 is 15.3%. For companies that generate more than 50% of sales inside the U.S., the blended revenue growth rate is 12.4%. For companies that generate more than 50% of sales outside the U.S., the blended revenue growth rate is 23.8%.
Europe is a hot spot of growth right now. Research firm Refinitiv I/B/E/S recently reported that European corporate earnings, as represented by the STOXX Europe 600 index, are expected to have risen 47.6% on a year-over-year basis to 96.1 billion euros ($112 billion) in the third quarter
As the global economic recovery picks up steam, benchmark indices in most regions of the world are in bullish mode. In the U.S., stocks hover at record highs.
That said, the major U.S. indices took a breather Wednesday, on supply chain and inflation anxieties. The Dow Jones Industrial Average fell 266.19 points (-0.74%), the S&P 500 fell 23.11 points (0.51%), and the small-cap Russell 2000 fell 43.58 points (-1.90%). The tech-heavy NASDAQ closed essentially flat, rising 0.12 points in the wake of strong earnings results from Big Tech.
In pre-market futures contracts Thursday, the major U.S. indices were trading in the green as investors turned their attention back to robust global economic growth.
Cashless is king…
The outperformance of companies with global exposure is largely driven by the technology, financial, and energy sectors, which are booming as economies recover from COVID. Certain regions of the world are getting short shrift from American investors, notably the European Union.
And yet, the EU as well as Asia are home to multinational corporations that are surpassing the earnings performance of their U.S. counterparts.
As we’re seeing from Q3 earnings results so far, big global banks are thriving and they’re emblematic of the trends I’ve just described.
From an investment standpoint, the most promising banks span many countries. That’s because success means reaching across national boundaries to find new opportunities. Also, banks must be large enough to afford the cost of complying with new financial regulations that come with operating overseas.
Banks aren’t just barometers of economic growth; they’re also leading indicators when it comes to social and cultural trends. For more and more bank customers, “cashless” is king, a transition that’s gained impetus because of the pandemic.
For transnational financial services, technology is key to both tapping new markets and keeping costs in line. Banking via mobile devices is translating into fewer brick-and-mortar bank branches, especially in emerging markets such as Africa where infrastructure is less developed. Meanwhile, inexorable consolidation is making the big banks even bigger.
In tandem with global growth has been the rise in commodities prices. The value of raw materials should continue on an upward trajectory, as producers show a ravenous appetite for raw materials to meet consumer demand.
As the population of middle class consumers expands and infrastructure spending explodes, raw materials miners will richly benefit from the commodities “super-cycle.” Commodities also make a classic hedge against inflation, which is undoubtedly increasing.
The stocks of commodity producers, such as mining or agricultural companies, are appealing now. They’ve generally enjoyed market-beating price appreciation this year and they’re positioned to take off in 2022.
Such equities are leveraged to moves in the price of the relevant commodity, but with less risk than futures contracts. Want to learn the identity of our top commodity stock pick? Click here for our free research report.
John Persinos is the editorial director of Investing Daily. Subscribe to his video channel.