4Q 2021 International Equity Outlook: Exposure to Strong Companies

Exposure to Strong Companies

Portfolio Manager David Souccar discusses consumer staples, luxury, biotech and technology companies that cannot be replicated in the US.

• International markets can provide exposure to European businesses that we believe cannot be replicated in the US, such as global consumer staples company Nestle.
• Investors can also find many leading technology companies in Japan, such as Keyence, a global leader in vision automation, and Hoya, a leader in mask blanks for semiconductor manufacturing. This is despite Japan’s declining population, bureaucracy and lack of innovation.
• Emerging markets have been impacted by macro issues and were hit hard by COVID-19 due to their vulnerability to health care crises. However, we feel quality businesses similar to those in developed markets do exist, but they are in earlier growth stages. For instance, Asian Paints is a market leader for decorative paints in India and has a very similar business model to US company Sherwin Williams, which has had a strong track record over 30 years. Similarly, Walmex brings Walmart’s know-how to formalize retail in Mexico. We believe investors can find best-in-class companies in emerging markets that can compete on a global stage. Tata Consultancy Services initially started to arbitrage low-cost labor in India but is now a world-leading consulting company.
• China is transitioning from a higher growth economy to a slower growth economy. Some of the government regulations implemented today are a response to that change. In the long run, we believe the outcome should be sustainable, higher quality economic growth. In our view, there are strong companies in China that can avoid regulatory and real estate risk.
• While US equities have outperformed international this year and over the previous ten years, it is important for investors to consider not only the potential upside but also downside protection. As we enter a period of greater volatility and lower growth, we believe long-term investors can benefit from a diversified portfolio of both domestic and international equities.

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