Since the beginning of 2017, global activity has strengthened, with support from domestic growth in advanced economies and China, along with improved performance in other large emerging market economies. Per the World Bank’s report published in June, global economic growth is projected to be 2.7% for 2017, up from 2.4% recorded in 2016.
Moreover, the World Bank report stated that the U.S. economy will grow at a marginal pace of 2.1% — half the growth rate of 4.1% for developing countries and also lower than the global pace of growth.
The optimism surrounding improvement in the U.S. economy including continued strengthening of the labor market, increase in household spending, lower unemployment rate and rise in business activities is supported by the latest Fed’s projected economic growth of 2.5% for 2018 (up from the prior guidance of 2.1%).
Additionally, the implementation of tax legislation is anticipated to stimulate the market with more job creation and rise in inflation rate. Following the massive cuts in tax rates (from 35% to 21%) for the U.S. businesses, companies in various sectors are poised to benefit immensely. Notably, the S&P 500 index has recorded near 20% growth, year to date.
At the same time, the international market has been improving, with economic growth gaining momentum across the most advanced nations, which have been laggards for a long time. While accommodative monetary policy and fiscal stimulus are propelling growth, an improving labor market scenario and fortifying global trade are ensuring sustainability.
A measurable progress on overcoming weak industrial activities globally is making investors increasingly optimistic. This, along with expectations of improving profit margins with some economies nearing the turning points of monetary policy cycles and increasing demand from relatively less levered consumers and businesses, has helped foreign stocks record significant growth so far this year.
Therefore, an appropriate strategy for diversifying your portfolio by adding a few foreign stocks is feasible right now. These companies, mainly operating in their home countries, have an advantage of being largely influenced by local economic growth. A comprehensive fundamental and economic analysis shows that some foreign stocks can be more rewarding now.
