The start of a new quarter means new allocations for fund managers, and given the mess in Washington, two strategists tell us this morning to shift assets overseas.
European and Japanese recovery should sound familiar to blog readers:
--EU manufacturing strength (9/3)
--EU exports rising (8/16)
--EU emerging from recession (8/12)
--Japan surprises to the upside (9/24)
In other words, there's plenty of evidence the world is improving. The question for investors: Where is it improving most? As a proxy, we're using forward earnings estimates.
As Itau Advisor Jay Pelosky elaborates in his note:
"Getting this leadership change right is the big call for investors and one that the Fed’s surprise reinforces (a stagnant U.S. vs. recovering non-U.S. markets supported by continued Fed-provided liquidity). The positive rate of change argument clearly favors the non-U.S. developed economies versus the U.S. and emerging market economies."
A change in leadership may require a change of perspective, so we highlight the difference between U.S. outperformance compared to Japan and the EU. With earnings growth so much stronger abroad, we suspect the gap will begin to narrow.