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International Growth

Where Are the Opportunities Hiding in International Equities?

Emily Leveille, CFA
Portfolio Manager and Managing Director
15 Mar 2023
7 min watch

Portfolio Manager & Managing Director Emily Leveille discusses the regions, sectors and industries where she sees opportunities in international equities.

Read Transcript
Where Are the Opportunities Hiding in International Equities?

Elle Wu

I’m Elle Wu, a client portfolio manager here at Thornburg Investment Management. I’m here today with Emily Leveille, co pm of the International Growth Strategy. We’ll be talking today about why international. Emily, thank you for being here with us.

Emily Leveille

Thank, Elle.

Elle Wu

One of the things that have been discussed in the media outlets is the possibility of a recession being more likely in Europe than the US. What do you think about that?

Emily Leveille

Yeah, I think that was certainly true last year. A few things have changed that outlook a little bit. The main one actually is China. So, the reopening in China has been a significant boost to the eurozone. And the reason for that is European companies have in general more exposure to China than US companies do, and also Chinese tourists are really important driver of the European tourism economy. So as China has reopened, we’ve seen the forecasts for the euro zone actually start to increase and expectations for a recession have faded. The last component of that that I think is also really important is the energy crisis in Europe, which where we have avoided the sort of worst-case scenario that people thought might happen last year with a very cold winter requiring energy rationing. And that has not played out.

Elle Wu

That’s really important. I mean, how does that tie into where evaluations stand today? What’s priced in?

Emily Leveille

It’s interesting you mention that because the evaluation gap between the US market and international markets is almost as wide as it’s ever been. So, since the financial crisis, the S&P 500 has traded at a premium to the benchmark that we use in our strategy, the MSCI ACWI ex-US growth index. But that that premium or that discount has widened in the last few years. And what’s interesting right now is that because everyone thought that Europe was going to go into this very deep recession last year, earnings expectations were cut pretty significantly. And now we’re seeing actually this positive development from the reopening of China. And so we think that the expectations that are embedded in that price earnings multiple for our index and for a lot of the companies that we cover are much more reasonable and actually may have room to increase a little bit relative to the US market where we think analysts are still not properly accounting for the slowdown in the economy that we expect will happen as a result of the Federal Reserve’s increase in interest rates.

Elle Wu

Another trend that has been spoken about a lot recently is climate change. Climate change has been on the forefront of people’s minds, especially ever since the US enacted the Inflation Reduction Act. And we’ve also seen country after country make zero carbon pledges. How do you feel Europe is reacting to the IRA and what are they doing in response and what are the investment opportunities that you see in Europe for climate change?

Emily Leveille

So, Europe really wants to be seen as a climate change leader. It’s also really important to them because they’re a net energy importer as opposed to the United States that has much more secured fossil fuel energy supply. The European Union has really focused on making sure that that fiscal stimulus that was allocated at the beginning of COVID is used and directed in ways that make it more competitive in the energy transition so that it doesn’t fall behind some of the spending that the US has enacted with the Inflation Reduction Act.

Elle Wu

So, with the diversion of capital going to other areas, are there investment opportunities that you’re excited about?

Emily Leveille

Yeah, absolutely, I mean, I think the capital that’s going to be deployed globally in the next decade in order to effectuate the energy transition and mitigate climate change presents really, really interesting investment opportunities both in Europe and the US and everywhere else in in the world. You know, on the supply side, obviously we have the sort of build out of a new energy infrastructure.

We think some of the picks and shovels behind the build out about energy infrastructure could be really interesting. For example, high quality providers of materials and supply that go into building out the energy infrastructure. And then on the demand side on the public will be people will be quite incentivized, we think, to make their homes more efficient. And build new homes and new buildings more efficiently. And so, there are a number of companies that provide greener and more efficient building materials that are more energy efficient way to heat and cool homes. And so we also think that there are some really interesting opportunities there. You know, the opportunities will make themselves more clear as we start to see the spending on the ground.

Elle Wu

And we thank you so much for your time today.

Emily Leveille

Thanks for your interest, Elle.

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