Carl Kawaja is an equity portfolio manager and principal investment officer of American Funds EuroPacific Growth Fund®, the world’s largest actively managed international equity fund. In this interview, Carl explains why he is optimistic about international stocks following a long period of trailing U.S. markets.
Q: What is your outlook for international equity markets?
A: It’s been a very strong year so far for non-U.S. markets and I expect that to continue. Prior to the start of 2017, international equities went through a difficult period, lagging U.S. equities for nearly a decade. In the EuroPacific Growth Fund, we provide international diversification because we believe it’s a prudent part of an overall investment portfolio, but the results also need to be competitive relative to the S&P 500 over some significant period of time. There will always be periods when international stocks lag, but there also should be times when they outpace U.S. markets and I believe we are embarking on one of those periods now.
Q: Why do you think the rally will continue into 2018?
A: There are quite a few reasons. Non-U.S. companies are starting to put a greater emphasis on profitability and shareholder returns. We’re seeing broad-based strength across a number of international markets, not just one or two. We’re also seeing strength across all sectors. The European economy has stabilized. Japan appears to be headed in the right direction. And many emerging markets are as strong as they’ve been in quite a while. Dollar weakness has also helped. Additionally, Europe and Japan took longer than the U.S. to recover from the global financial crisis so, arguably, they have more room to run. For all of these reasons, I remain positive about the outlook going forward.