The global economy continues to chug along, but individual country growth remain disparate. Investors, though, may pick and choose their global exposures with country-specific exchange traded funds.
“The global financial markets have remained in a sweet spot amid steady growth, low inflation, and heavily accomodative monetary policies, and we continue to favor global equities,” according to a Fidelity Investments research note. “However, we believe the world is in the midst of a slow transition toward a less accommodative monetary policy stance, global activity is likely peaking, the U.S. business cycle continues to mature, asset valuations are generally elevated, and geopolitical risks are rising.”
Fidelity Investments argued that while U.S. growth is broad and steady, the economy has shown a mix of mid- and late-cycle dynamics as it moves into its late economic cycle of maturing and slowing growth.
Alternatively, Fidelity pointed to other countries that are still in their earlier stages of economic recovery and expansions. For instance, Japan and Brazil are just transitioning from a the early business cycle to the mid business cycle and are still in their recovery phase. The two economies could continue to experience faster growth rates before peaking.
Investors can gain exposure to Brazilian and Japanese equities through the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) and iShares MSCI Japan ETF (NYSEArca: EWJ), respectively.
China is still a strong growth story, but it is near its peak of middle business cycle and may see growth has peaked.
“China’s activity has rebounded to multiyear highs, but policy tightening and slowing momentum in industrial activity and housing suggest most of the upside has already occurred,” according to Fidelity.
Investors can gain exposure to China through options like the iShares China Large-Cap ETF (NYSEArca: FXI), SPDR S&P China ETF (NYSEArca: GXC), VanEck Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT), and db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR).
European markets also look attractive as they are still near their middle business cycle.
“The Eurozone is not as far along as the U.S. in the cycle, and it continues to benefit from improving sentiment and credit conditions,” according to Fidelity.
For broad Europe exposure, investors can look to something like the iShares MSCI EMU ETF (NYSEArca: EZU) and SPDR EURO STOXX 50 (NYSEArca: FEZ).
When looking at U.S. markets, investors may look to energy and materials sectors that have done well as inflationary pressures build and late-cycle economic expansion helps support demand. ETF investors in the oil industry can track broad sector plays like the Energy Select Sector SPDR (NYSEArca: XLE), Vanguard Energy ETF (NYSEArca: VDE) and Fidelity MSCI Energy Index ETF (NYSEArca: FENY). For materials exposure, investors can look to the Materials Select Sector SPDR (NYSEArca: XLB), Vanguard Materials ETF (NYSEArca: VAW) and Fidelity MSCI Materials Index ETF (NYSEArca: FMAT).
For more information on the global markets, visit our global ETFs category.