Flows from the US to international equities are shifting, with Europe and Japan standing out as attractive opportunities.
Paul Eitelman, Russell Investments chief investment strategist for North America, joins Catalysts to discuss the appeal of European markets as well as Japan's corporate governance reforms.
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Where do you continue to see opportunity in terms of international exposure that's not already starting to be a little bit overdone?
Yeah, I mean, uh, global diversification has been a big focus for us in 2025. And so I'd say two regions that stand out as being attractive here in our view are Europe and Japan. I think in the case of Europe, it's certainly been a performer year to date relative to the United States. But even with that out performance, um, relative valuations on a forward price to earnings basis are trading at still a 30% discount to the US market. That's about as cheap as Europe has been since 2001. And I think we've started to see some incremental cyclical catalyst for European fundamentals here as well. Obviously, the ECB has been cutting interest rates, uh, which is a positive. Uh, there's been increased fiscal spending from Germany. We're starting to see a credit impulse creep in through the banking system in Europe, which correlates pretty nicely, uh, with GDP growth. And that combination or recipe of cheaper valuations and improving cyclical dynamics is often a positive one, uh, for investors. Uh, I mentioned Japan as well. I think that's another area where on the back of, um, corporate governance reform, we're starting to see better usage of cash from Japanese corporates towards buybacks, improving margins, improving return on equity. Um, and Kenny was talking about a potential trade deal with India earlier. I'd say Japan is also towards the front of the pack towards a possible trade deal with the United States, um, in the coming days. And if we get a positive, um, there, uh, that could be a kicker for both Japanese equity market performance, but also, uh, global equities at large if we start to hit some of those singles that that Kenny was talking about and start to improve risk appetite in the market again.
