International Equities

10 min read | Global markets recovered strongly during the fourth quarter, aided by falling inflation expectations, optimism that the US Federal Reserve would move away from aggressive policy tightening, an improved energy outlook in Europe, and President Xi’s unexpected decision to unwind zero-COVID policies. The rally was certainly welcomed, but 2022 was the most challenging year since the global financial crisis. According to Michael Howell of CrossBorder Capital, global investors lost US$23T of wealth in housing and financial assets in 2022, equivalent to 22% of global GDP and greater than the US$18T of losses suffered in the 2008 financial crisis. Commodities were the only refuge, as long-term bonds had their worst year since the 18th century (according to the Financial Times) and and equities fell 18.1% in 2022 (MSCI World Index), as measured in US dollars.

The downturn in markets continued during the third quarter as concerns over tightening monetary policy, inflationary pressures, weakening economic growth, and geopolitical risks intensified. Despite strong gains early in the quarter, the MSCI EAFE Index declined 9.4% (as measured in US dollars), ending approximately 27% below peak levels reached in September 2021. The Altrinsic International Equity portfolio declined 9.8% over the same period.

Greed has given way to fear. We have not reached a stage of extreme capitulation, liquidity unwinds, or distress, but fear emanating from headlines and market declines is reflected in poor investor sentiment and the growing presence of value.

International equities delivered their worst quarterly performance since the European sovereign debt crisis as uncertainty stemming from inflationary concerns, tightening central bank policies, and rising recession risk weighed on markets.  The Altrinsic International Equity portfolio declined 11.5% during the second quarter, outperforming the MSCI EAFE Index’s 14.5% decline, as measured in US dollars.   Outperformance was derived from all major industry exposures except real estate and utilities.  Japanese and European-based companies with meaningful US dollar exposure were notable outperformers, benefiting from the relative strength of the US dollar versus most other currencies.  We take no consolation in our relative outperformance during this painful drawdown.  Near-term macro data and corporate earnings will likely be disappointing, but we are confident in our positioning and encouraged by the investment propositions offered by a growing number of companies with strong long-term fundamentals and attractive valuations.

The Altrinsic International Equity portfolio declined 1.5% during the first quarter, outperforming the MSCI EAFE Index’s 5.9% decline, as measured in US dollars.   Just as most nations began lifting COVID-related restrictions and returning to normal, tensions intensified amidst surging inflationary pressures, tightening policy measures in the US,  lockdowns in China, and Russia's invasion of Ukraine.  

Beginning with the January insurrection at the US Capitol and ending with the rapidly spreading Omicron COVID-19 variant, 2021 provided much for markets to digest.  Nonetheless, equity markets continued their rise with support from re-opening economies, strong corporate earnings growth, and stimulative monetary and fiscal policies.  US equities and “growth” stocks continued to lead markets during the fourth quarter, but important transitions are underway that are supportive of a long overdue broadening away from this leadership in markets.

The Altrinsic International Equity portfolio declined 2.2% during the quarter, compared with declines of 0.4% and 3.0% for the MSCI EAFE and MSCI All Country World ex-US indices, respectively, as measured in US dollars.  Strong performance by our financials holdings was offset by weakness among health care, communications, and consumer-related investments that lagged due to uncertainties stemming from COVID-19 and China. 

Equity markets delivered strong gains in the second quarter, aided by continued policy stimulus, robust economic and corporate earnings growth, positive sentiment stemming from fewer global COVID-19 cases, and a supportive interest rate environment.  Health care stocks led the market on softening political rhetoric and positive new drug discoveries, while higher quality stocks in consumer staples and technology also advanced sharply.  

Equity returns were strong in the first quarter, supported by positive economic and corporate earnings revisions that offset the negative impact of rising interest rates.  The Altrinsic International Equity portfolio gained 3.6%, as measured in US dollars, compared with the MSCI EAFE Index’s 3.5%.  The most significant market developments were a continued rotation into cyclical and leveraged equities, a surge in commodity prices (S&P GSCI +14.2%), increased inflation expectations, and negative returns for bonds (FTSE WGBI -3.2%).

International equity markets delivered strong gains during the fourth quarter with the Altrinsic International Equity portfolio and the MSCI EAFE Index returning 15.4% and 16.0%, respectively, as measured in US dollars.  As shown in Charts 1 and 2, the strong narrow leadership by highly priced technology stocks that prevailed during most of the year gave way to a rebound in deep cyclical and lower quality businesses during the fourth quarter as encouraging vaccine developments spurred optimism about a return to normal life and improving economic conditions.  Financial markets continued to b

Equity markets delivered solid gains during the third quarter, propelled by significant upward revisions to corporate earnings prospects, low interest rates, and a US Federal Reserve policy announcement suggesting that interest rates will be kept low for the foreseeable future.  COVID-19 case counts remain elevated and economic conditions generally remain pressured, but recent data has been trending better than consensus expectations.  As stock markets appear to be discounting further economic improvement, they continue to be led by a small group of highly-valued "new economy" stocks that a

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