Brazil, Japan May Offer US ETF Alternatives

Will U.S. stay on top post-stimulus? Franklin Templeton’s Ting looks overseas for answers.

HeatherBell_green_bg
|
Reviewed by: Heather Bell
,
Edited by: Heather Bell

As the effects of government stimulus taper off and interest rates rise, investors may wonder if U.S. stocks and exchange-traded funds are the best places for their money. 

Dina Ting, Franklin Templeton's head of global index portfolio management, sought to provide answers last week when she joined ETF.com’s Heather Bell and Sumit Roy for the Exchange Traded Fridays podcast. Her firm offers more than 20 passively managed, cap-weighted country and regional funds among 45 ETFs. 

In recent years, U.S. equities have solidly outperformed foreign stocks , raising questions about the value of investing internationally. But the U.S. has not always been at the top of the leaderboard, and there’s no guarantee it will remain there now.  

Ting said the U.S.’ outperformance has been driven at least in part by government help and other factors.  

“The U.S. stock has been outperforming because of a very strong stimulus and incentives that come into play,” she said, noting that the strong performance of U.S. technology stocks was another contributor.  

Investors should look beyond growth and value exposures to consider both fundamental and macro criteria when investing internationally, Ting said. Below she shares ideas on investing in Brazil, Japan and China. 

Brazil 

Brazil is looking particularly attractive in her opinion because of how it benefits from elevated commodity prices and favorable demographics. including a young workforce.  

Further, Ting noted that the recent election that saw Luiz Inacio Lula da Silva defeat Jair Bolsonaro appears to be a peaceful transfer of power, which had concerned investors.  

Moreover, despite Lula’s left-leaning policies, having held the role previously from 2003 to 2010, he is a known entity on the global stage, which is reassuring to global investors, as is the likelihood that Brazil’s Congress and president will likely serve as a check and balance to each other. Lula has also made statements in support of fiscal responsibility during his campaign.  

“[Brazil is] still trading at a really significant discount, compared to the historical averages as well as compared to the rest of the world,” Ting said.  

Japan 

Ting also highlighted the fact that if currency effects are hedged away, Japan has had a positive return year to date.  

“Japan has been trading at an attractive valuation for some time. [Its] location in Asia and the potential to be trading partners to many of the countries in the region make Japan attractive,” she explained. 

Japan is a strong exporter, according to Ting, and a major trading partner to both the U.S and China. The country is also reaching a resolution on demographic issues holding it back, as more women enter the workforce. Further, the country last year took an unusual step and elected a prime minister with a financial background, she added. 

“The fact that they are very focused, it seems, in terms of creating policy that will spark growth going forward, is attractive,” Ting noted. 

China 

Ting described China as a “huge market that investors cannot ignore.” She said that with 1.6 billion people, the country is not just a major exporter but a major consumer. 

“I would expect the Chinese economy will shift a little bit more from just a pure manufacturing and exporting country into more of a consumer-driven market,” she noted, highlighting how China’s “Singles Day” has become something like its version of Amazon Prime Day, with online sales on that day growing at a high rate over the past 10 years. 

Ting believes the country will eventually find a balance between its strict zero-COVID policy and the interests of its economy, noting that its markets have seen steep declines last year and this year, highlighting that “at some point, people will see value around that.”  

Certainly, those steep declines could make for an attractive entry point.  

Ting also believes that pent-up consumer demand within the country will need to be satisfied at some point.  

 

Contact Heather Bell at [email protected] 

Heather Bell is a managing editor with etf.com. Prior to joining the company, she held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and a one-time Jeopardy! champion. She resides in the Denver area with her two dogs, and enjoys hiking in the mountains and frequenting the city’s excellent bookstores.