International Investors faced minefields or pots of gold in 2024 depending which region, country and industry they searched for value. In aggregate the minefields ruled with the MSCI ACWI-EX U.S. index lagging the U.S. index by almost 2,000 basis points.
The dichotomy in returns was especially pronounced in emerging markets. The president of South Korea, the home of Samsung Electronics, was impeached in December following his attempt to impose martial law – he has resisted all attempts at arrest. Three days after parliament impeached Acting President Han Duck Soo, a Jeju Airline crashed in the Muan International Airport making it the worst aviation disaster on South Korean soil. According to MSCI, the Korean market dropped over 19% for the last quarter of the year and 23% for the year. Other emerging markets, such as Mexico, Brazil and China were also down sharply in the final quarter due to the risk that tariffs that might be imposed by the Trump Administration. On the other hand, Taiwan’s heavily weighted tech index (TAIEX) was up circa 30%, driven by the anticipated demand for AI and relevant semiconductors. MSCI’s emerging market index was down 7.84% for the final quarter, although for the full year it was up over 8% – lagging the U.S. market, depending upon the index used, by 1700 basis points.
In developed Asia, the A1 phenomena’s impact on Japanese technology companies has been cited as a factor in the Nikkei index’s closing at a record high. The weak yen also was credited with bolstering corporate profits. Having visited Japan in December, I can attest that an increasing sensitivity to shareholder value has made Japanese stocks more appealing.
Developed Europe was down over 9% for the final quarter and up only 1.5% for the year. The impact and uncertainty of the Ukraine war continued to weigh on sentiment, as did the uncertain future of some of its political leaders. In June, French President Macron called for early parliamentary elections, which led to more seats for the far-right and a hung parliament. In the meantime, in Germany the uneasy coalition of the Free Democratic Party and Chancellor Scholz’s Social Democratic Party fell apart, Scholz lost a legislative vote of confidence on December 16th, German president Steinmeier dissolved the lower house of parliament and set a new election for February 23rd. Uncertain leadership is an anathema to companies struggling with geopolitical conflicts, sluggish economies and ramifications of Trump’s re-ascendancy to president.
The macro environment in 2025 will continue to be bumpy. There will be elections throughout the world with more governments leaning to the right and becoming more insular and protective. Armed conflicts known and hidden will still cause disquiet and disruption. It’s inevitable that the unsettled atmosphere will have an impact on global trade, investors sentiment and earnings potential.
This isn’t new. Political parties come in-and-out of power and sentiments change. Conflicts flare and wane. Investing views shift. Still having visited Europe and Japan last year and met with managements representing a wide variety of industries, I can tell you there remain great opportunities in which to invest. New inventions in technology and healthcare will create new products and revenue streams and increase efficiencies. Savvy managers, anticipating changes in trade flows, are fine-tuning their supply routes and manufacturing structure while building stronger client relationships. In aggregate in international markets, you are paid to take risk. The forward p/e of the MSCI All Country World Ex-U.S. Index is 13.25x – the MSCI U.S. index’s forward p/e is 21.91x. The international index also sports a lower price/book and a higher dividend yield.
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