The US stock market started 2024 where it left off, with the benchmark S&P 500 up more than 10 per cent year-to-date, and chip maker Nvidia up about 90 per cent.
Every investor is asking the same question: How long can this go on? The honest answer is nobody knows. But for those keen to look beyond the US, there are some exciting opportunities out there.
If you are looking to invest $10,000 (Dh36,725) over the next quarter, here are three top non-US trends to consider right now.
The first gives you exposure to a stock market that has given Wall Street a run for its money, the second is an interesting European alternative to the Magnificent Seven US tech mega-caps, while the third is a beaten-down sector that could rebound when major central banks start cutting interest rates, most likely in June.
As with any investment, always consider both the risks and rewards and aim to hold for a minimum of three to five years, not just three months, and ideally far longer to overcome short-term volatility. Give them time to thrive.
1. India
The S&P 500 isn't the only major global stock market running rampant right now. India has been enjoying a rip-roaring bull run of its own.
The MSCI India Index has delivered impressive double-digit returns in three of the past four years, rocketing 22 per cent in 2023, 28.86 per cent in 2021 and 18.64 per cent in 2020.
The disappointment was 2022, when the market grew just 2.96 per cent, but that was in a year when the MSCI World Index crashed 17.73 per cent.
The Indian market faltered last month, when the Nifty50 plunged 1,000 points on March 12, but has since picked up again.
Investors should treat any weakness as a buying opportunity, says Jason Hollands, managing director of fund platform Bestinvest by Evelyn Partners.
“I remain bullish on India. It has a young and fast-growing population and is enjoying the longest period of political stability since independence,” he adds.
The country goes to the polls from April 19, with Prime Minister Narendra Modi on course for the third victory in a row, potentially with an even larger majority.
He has reformed India’s tax and benefits system and driven through huge infrastructure investments, Mr Hollands says.
“With the highest gross domestic product growth rate of any major emerging market economy and the prospect of continued stable administration, India is a major bright spot for investors.”
US-China tensions are also working in its favour. “India is attracting increased foreign investment as businesses look to diversify supply chains away from China,” Mr Hollands reckons.
Ben Heatley, head of closed fund sales at fund manager Abrdn, warns that India stock valuations are “relatively high” after a successful run, but adds: “They are well-anchored by solid corporate fundamentals and resilient earnings prospects in a world of lacklustre growth.”
For those comfortable with buying at today’s highs, there are plenty of exchange-traded funds to choose from, including the popular Franklin FTSE India UCITS ETF, iShares MSCI India UCITS ETF and Xtrackers Nifty 50 Swap UCITS ETF.
2. Granolas
The “Granolas” is the investment acronym the world didn’t know it needed, but Goldman Sachs gave it to us anyway.
The acronym stands for 11 high-quality, internationally focused companies that are Europe’s riposte to the Magnificent Seven: GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L'Oreal, LVMH Moet Hennessy, AstraZeneca, SAP and Sanofi. This actually spells Grannnolass, but let’s not be too picky.
David Freitas, investment writer at Seven Investment Management, says Goldman Sachs coined the term in 2020 but it’s belatedly swung into fashion as investors seek to diversify from the US without sacrificing returns.
Since 2021, the Magnificent Seven has returned an impressive 98 per cent, but the Granolas served up a tasty 72 per cent.
“They now make up around a quarter of the Stoxx Europe 600’s entire market capitalisation,” Mr Freitas says.
While the European economy has struggled for some time, the Granolas benefit from being major international companies, as well as delivering solid earnings growth, high and stable margins and strong balance sheets.
In fact, gains on the Granolas have masked the broader decline in European shares, says Vijay Valecha, chief investment officer at Century Financial in Dubai.
They offer greater diversification than the Magnificent Seven as they operate across six different sectors – health care, technology, packaged foods, household and personal products, luxury goods and technology.
But Mr Valecha warns: “Luxury and packaged foods can be cyclical, doing well when the economy is booming, but struggling in a downturn.”
However, they could have further to climb once central banks start cutting interest rates and shoppers feel richer again, Mr Valecha adds.
These European leaders look attractive today, but he warns that European markets have trailed the US for years.
“Over the past decade, the S&P 500 returned 235 per cent, while the Euro Stoxx 50 delivered just 111 per cent,” Mr Valecha points out.
There is no Granola ETF – at least not yet – but the companies make up more than 40 per cent of the Stoxx Europe 50, so any ETF tracking it will have plenty of exposure, such as the iShares Stoxx Europe 50 UCITS ETF and the Deka Stoxx Europe 50 UCITS ETF.
3. Commercial property Reits
Few private investors consider commercial property and lately that’s been a good thing because performance has been horrible.
Commercial property covers everything from office blocks, warehouses, shopping centres, industrial parks, supermarkets to hotels, holiday resorts and care homes. It doesn’t cover residential.
The sector was hit hard by Covid lockdowns, which shuttered shopping centres and hit demand for office space as people worked from home.
Rising interest rates have also depressed commercial property prices, while cash-strapped shoppers spent less due to the cost-of-living crisis.
Rob Burgeman, senior investment manager at RBC Brewin Dolphin, anticipates a revival when interest rates start falling.
“The companies that benefit when rates are cut are probably going to be some of the same ones that struggled as they rose,” he says.
Real estate investment trusts (Reits), a form of collective funds that invest in the sector, offer investors a combination of rental income from tenants plus capital gains from any property disposals.
Today, they are cheap, often trading at large discounts to the underlying value of the property portfolios.
Probably the simplest way to access the resurgent sector is through an ETF, with the Vanguard Real Estate ETF yielding about 4 per cent, and the iShares Global Reit ETF and Real Estate Select SPDR Fund yielding about 3.6 per cent.
Again, it’s a risky sector and if interest rates stay higher for longer than expected, the commercial property recovery may be delayed.
