Can Non-US Markets Outperform When The US Sells Off? (w/ Jay Pelosky) | Interview | Real Vision™

TL;DR

Assessing the impact of capital flows on the US equity market and potential outperformance of non-US markets during a downturn.

Transcript

tri-fold world in investing you can take it from the asset allocation the asset class decision to the regional decision to the country to the sector to the company and it flows all the way through very very nicely but what is it what does this mean for the for the US equity market because I think what you say is absolutely right if you look at the ... Read More

Key Insights

• 🍉 The US equity market has dominated global markets in terms of outperformance over the past five years.
• 🤨 The impact of capital flows on the US equity market and the potential outperformance of non-US markets during a downturn raise important questions for investors.
• 🌍 Europe presents an appealing opportunity, as many major investors have yet to allocate significant funds to the region.
• 🍉 A long-term perspective is necessary when considering investing in non-US markets, as short-term volatility and political events can temporarily impact performance.
• 🥺 The prolonged period of declining volatility in the markets may lead to increased volatility in the future.
• 🍰 Shorting the VIX has been one of the most profitable trades in recent years, but it carries significant risks and may not be sustainable.
• ❓ Market volatility could increase if a significant downturn occurs in the US equity market.

Questions & Answers

Q: Can non-US markets outperform when capital leaves the US?

This remains uncertain until a downturn occurs and capital starts to flow out. Non-US markets may struggle to outperform the US, especially during sizable corrections, but their performance could depend on factors such as Europe's stability and economic growth.

Q: Why is Europe seen as a potential opportunity?

Many significant players in the investment world, such as asset allocators and sovereign wealth funds, have not allocated substantial funds to Europe. This suggests that there is significant upside potential for European markets, even if there are temporary political or economic concerns.

Q: Could Italy's upcoming election affect European markets?

While a sideways movement or modest sell-off in Italy is possible during the election, it may not deter long-term investors from entering or even bolstering their positions in European markets. The slower-moving, larger pools of money have yet to fully invest in Europe.

Q: What concerns are there about the current market environment?

A fear is that markets will become volatile again, as we have become accustomed to declining volatility. Shorting the VIX (CBOE Volatility Index) has been consistently profitable in recent years, but this trade carries significant risks, and market volatility could potentially return.

Summary & Key Takeaways

• The US equity market has outperformed global markets over the past five years, leading to questions about potential capital outflows.

• The main concern is whether non-US markets can outperform when the US market sells off.

• Europe presents an interesting opportunity, as many large asset allocators have not yet invested heavily in the region.