Consider having some international allocation. While economic growth and market returns are not always correlated, to the extent that investors have low expectations for Europe and China, better-than-expected local growth will help support these markets.
In addition, while we are likely to continue to see more volatility abroad, international markets mostly look cheap compared to US stocks and potentially offer some long-term value. Today, based on price-to-book values, other developed markets trade at a 20% discount to the United States, while emerging markets trade at more than a 40% discount.
In addition, sentiment toward international stocks might also finally be turning, at least toward European equities. Look for more from me on Europe in an upcoming post.
Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist.
The author is long IOO.