Emerging Markets

MARKET COMMENTARY  |  August 2015

World Markets Review for July 2015

Global stocks advanced amid improving economic data in the United States and an easing of the Greek debt crisis. Defensive sectors led markets higher as consumer staples, health care and utilities stocks rallied. Emerging markets stocks declined, weighed down by a sharp drop in Chinese shares and falling commodities prices. High-grade bonds gained from a flight-to-safety trade. The U.S. dollar rose against the euro, the yen and most other currencies.

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INVESTMENT INSIGHTS  |  August 2015  |  FEATURING Shaw B. Wagener

The Future Is Under Construction

Urbanization is nothing new. It’s been going on for centuries, and it helped make Europe and the United States global economic and political powers. But what is different about today’s wave of urbanization is its unprecedented speed and scale — it’s bigger and faster than ever.

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INVESTMENT INSIGHTS  |  August 2015  |  FEATURING Joanna F. Jonsson

Urbanization Is Transforming the World — Again

Per Capita GDP Has Risen in Tandem With Increases in the Urbanization Rate

Source: Exhibit from Urban World: Cities and the Rise of the Consuming Class, June 2012, McKinsey Global Institute, www.mckinsey.com/mgi, © McKinsey & Company. All rights reserved. Reprinted by permission. Urbanization is the increasing number of people living in cities as populations shift from rural to urban areas; the definition of urbanization varies by country. Pre-1950 data for the United Kingdom are estimated. Historical per capita GDP is expressed in 1990 Geary-Khamis dollars, which reflect purchasing power parity (PPP) that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency’s purchasing power. PPP helps determine the exchange rate adjustment so that identical goods and/or services in different countries have the same price when expressed in the same currency.

The wealth of nations soars when societies shift from rural to urban

Urbanization isn’t a modern phenomenon. In centuries gone by, the shift to living in cities underpinned the industrial revolutions of Europe and the United States and the rise of those regions to global economic and political power.

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INVESTMENT INSIGHTS  |  August 2015  |  FEATURING Joanna F. Jonsson

Getting Taller All the Time: Maybe the Sky Isn’t the Limit

2014 Was the “Tallest Year Ever,” With the Completion of a Record 97 Buildings Above 200 Meters

Sources: CTBUH Year in Review: Tall Trends of 2014, and Forecasts for 2015, Council on Tall Buildings and Urban Habitat; KONE Primer, CS European Capital Goods, May 2015, Credit Suisse. The total number of buildings completed for each year includes tall (600+ feet/200+ meters), supertall (900+ feet/300+ meters) and megatall (1,900+ feet/600+ meters) buildings; projected data for 2015 and 2016 represent expected, not possible, completions. The data for elevators and escalators are Credit Suisse estimates, based on company data as of fiscal year 2014, for new installations and maintenance.

The 3,281–foot Kingdom Tower in Saudi Arabia will be the world’s first kilometer–tall building

Elisha Otis founded The Otis Elevator Company in 1853, but it was the company’s 1903 innovation called the gearless traction elevator that set in motion a remarkable change in the urban landscape.

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INVESTMENT INSIGHTS  |  August 2015  |  FEATURING Andrew H. Dougherty

A $57 Trillion Bill for Infrastructure Is Coming Due

Global Investment (Trillions), 2013–2030

Source: Exhibit from Infrastructure Productivity: How to Save $1 Trillion a Year, January 2013, McKinsey Global Institute, www.mckinsey.com/mgi, © McKinsey & Company. All rights reserved. Reprinted by permission. McKinsey calculated the estimate of
$57 trillion, or 3.5% of global gross domestic product, for global infrastructure need through 2030 by compiling projections of demand in the different infrastructure categories shown. The estimate for telecom covers only those members of the Organisation for Economic Co-operation and Development, plus Brazil, China and India. The estimated investment amounts, expressed in constant 2010 dollars, may not sum due to rounding. The constant dollar is an adjusted value of currency used to compare dollar values from one period to another.

The world faces a massive construction project just to keep up with projected growth

Some countries need infrastructure that simply meets basic human needs, such as safe drinking water. Another may want to modernize its transportation network, and still others may be trying to lay the groundwork for future global competitiveness by building a national broadband network.

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INVESTMENT INSIGHTS  |  August 2015  |  FEATURING Todd M. Saligman

The Secret to Keeping People in the Air? Groundwork

Airport Construction Projects Worldwide and Investment Amount (in Billions)*

*As of January 2015

Source: CAPA - Centre for Aviation, Premium Airports Database, centreforaviation.com/data/airports. Data are for existing airports with projects either in progress or planned for and with a good chance of completion.

Globally, $543 billion worth of airport construction projects are in progress

China started working on a new airport near Beijing on December 26, 2014. The airport, which is being designed by Netherlands Airport Consultants, is expected to be completed in 2018 and cost about 
$14 billion. Upon completion, the 7.5 million square foot terminal will accommodate about 45 million people per year.

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INVESTMENT INSIGHTS  |  August 2015  |  FEATURING Gregg E. Ireland

Africa Leapfrogs Landlines, and Takes a Shortcut to the Bank

Sources: 2014 State of the Industry: Mobile Financial Services for the Unbanked, March 2015, Groupe Speciale Mobile Association (GSMA); “Banks Vie for a Piece of Africa’s Mobile Banking Market,” August 15, 2014, The Wall Street Journal; Safaricom Limited FY15 Presentation. The GSMA Mobile Money report is available at http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014. The data for mobile financial accounts per 100,000 adults are as of June 2013. The total M-Pesa transactional value of $45 billion is for the fiscal year ended March 31, 2015.

Technological advances can allow countries to skip building out traditional infrastructure

Africa provides one of the classic examples of technology trumping traditional infrastructure. The introduction of mobile phones has allowed millions of Africans to receive the social and economic benefits of telephone networks without the sunk cost of massive landline infrastructure.

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INVESTMENT INSIGHTS  | 
July 2015
 |  FEATURING Gerald Du Manoir & Matt Miller

China’s Economy-in-Transition Still Ripe for Investment

A portfolio manager discusses the investment opportunities he’s finding in China now that the nation’s infrastructure-building economy has transitioned into one that is more consumer-oriented.

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MARKET COMMENTARY  |  July 2015

World Markets Review for Second Quarter 2015

Global stocks produced mixed returns as signs of improving economic growth were offset by fears of rising interest rates and a worsening debt crisis in Greece. Telecommunications stocks proved to be a bright spot, driven higher by M&A activity, while the rate-sensitive utilities sector fell the most. Emerging markets stocks advanced, supported by monetary easing in China. Bonds declined and the dollar slipped 4% against the euro.

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MARKET COMMENTARY  |  June 2015

World Markets Review for May 2015

Global stocks managed a slight gain as investors reacted to mixed reports about the pace of worldwide economic growth. Technology and health care stocks rallied, while the energy sector continued to feel the impact of volatile oil prices on corporate earnings. Japanese stocks advanced on improving economic data. Emerging markets declined amid fears of higher U.S. interest rates. Bonds declined and the dollar rose against the euro and the yen.

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INVESTMENT INSIGHTS  |  May 2015  |  FEATURING Johnny Chan

Can Smartphones Replace Cash and Cards?

Mobile payments see growing acceptance as volumes surge

Sources: BI Intelligence (both charts) and Boston Retail Partners (left chart). Data for mobile payment volume are estimates and those for payment types are as of 2015.

There’s a big payoff for the winner of the race to change the way you pay

Cash or check? How about smartphone. In 2014, customers in U.S. retail stores made an estimated $5.5 billion in purchases using a mobile device. That’s only about 0.1% of the nation’s sales. In 2019, however, shoppers are expected to spend an estimated $819 billion using a mobile device, or about 15% of sales, according to researchers at BI Intelligence.

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INVESTMENT INSIGHTS  |  May 2015  |  FEATURING David Carpenter

Digital Is Transforming the Music Business

Music Downloads Top the Charts

Source: Recording Industry Association of America. Data are based on year-end shipment statistics for the recorded music industry in the United States and represent the cumulative total of all four music formats shown in any given year. Units refers to the raw volume of products, which may be physical or digital, in a given category. Vinyl, cassettes, CDs and downloads all include both albums and singles.

iTunes rocked the industry, but streaming may represent another seachange

Yes, sales of vinyl records are surging — nearly 10 million old-fashioned platters were sold in 2013, the most since 1997. Who’s buying records? Mostly hipsters into indie-rock, and diehard audiophiles who contend vinyl recordings sound better than digital (among recent bestsellers on vinyl: Jack White’s Lazaretto and Beck’s Morning Phase). While it’s nice for old times’ sake to see vinyl win a battle, the war over how we listen to music may be over, and if digital hasn’t already won, the others may be down for the count.

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INVESTMENT INSIGHTS  |  May 2015  |  FEATURING Mark Denning

No Status Quo: The Difference Disruption Makes

American Funds Investment Results

Figures shown are past results for Class A shares and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Results shown reflect deduction of the 5.75% maximum sales charge with all distributions reinvested. For more current information and month-end results, visit americanfunds.com.

Out with the old, in with the new. People of nearly every era have probably surveyed the world around them and marveled at how quickly things can change. But these days, change seems to be setting a new speed record.

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INVESTMENT INSIGHTS  |  May 2015  |  FEATURING Jonathan Knowles

The Cloud Potential Is Sky-High

Revenue from the cloud came fast for AWS

Sources: Capital Group and SEC (U.S. Securities and Exchange Commission) reported company financial filings. Data are estimates.

So high, so fast: Amazon Web Services is the fastest growing business in the history of enterprise IT

First off, all of your music and pictures aren’t really up in the air. The cloud is a cool name, but the reality of data storage and computing is more akin to a farm than the sky.

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INVESTMENT INSIGHTS  |  May 2015  |  FEATURING Rich Wolf

Unleashing the Immune System

Renewed focus on research and technology boosts biopharma revenue growth

Source: EvaluatePharma®, March 2014, Evaluate Ltd, www.evaluate.com. Data are based on sales totals that include conventional, biotechnology, other unclassified and over-the-counter sales.

Innovation in biopharma has changed the pharmaceutical industry, and the way we treat cancer

Cancer has a cloaking mechanism that’s so efficient the immune system can’t see the disease. That cloak of invisibility, however, may soon be pulled away thanks to revolutionary new approaches in immuno-oncology, which harnesses the patient’s own immune system to recognize and fight cancer.

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INVESTMENT INSIGHTS  |  May 2015  |  FEATURING Nick Grace

Warp Speed: Churn Rate for S&P 500 Is Accelerating

Sampling of companies that have entered and exited the S&P 500 Index, 1979–2015

Sources: S&P Capital IQ; Standard & Poor’s Analysts Handbook, 1980, and Stocks in the Standard & Poor’s 500, 1982, Standard & Poor’s Corporation; Dow Jones Newswires, 1987, Dow Jones; and Reuters.com, 2015, Thomson Reuters. Standard & Poor’s 500 Composite Index℠ and S&P 500® are service/trademarks owned by the McGraw-Hill Companies, Inc.

Many companies have turned disruption into opportunity 

Yale professor Richard N. Foster, co-author of Creative Destruction, has a warning for executives whose companies are now listed in Standard & Poor’s 500 Composite Index: Your days may be numbered.

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MARKET COMMENTARY  |  May 2015

World Markets Review for April 2015

Global stocks rose modestly amid a strong rally in the energy sector. Rising oil prices, surging M&A activity and central bank stimulus measures helped to support world stock prices despite a slowdown in U.S. economic growth during the first quarter. Emerging markets rallied as market observers pushed back the timing of an increase in interest rates by the Federal Reserve to later in the year. Bond markets declined and the dollar lost ground against the euro, the pound and most other currencies.

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MARKET COMMENTARY  |  April 2015

World Markets Review for First Quarter 2015

Global stocks advanced amid rising M&A activity, heightened central bank stimulus measures and signs of renewed economic growth in Europe and Japan. Health care stocks enjoyed a strong rally, driven by several large acquisitions, while the energy sector lagged as oil prices continued to slide. U.S. bonds rallied, with investors favoring them for their relative value as yields in Europe and Japan touched record lows. The dollar rose sharply against the euro and most other currencies.

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INVESTMENT INSIGHTS  |  March 2015

Focus on Evolving Opportunities in Emerging Markets

Moving Up the S-Curve

China is one of the most important engines of global growth. Despite the recent slowdown, the transition of a huge middle class to a higher standard of living will have an enormous impact on companies in China and across the world.


Sources: CEIC, National Bureau of Statistics of the People‘s Republic of China, Deutsche Bank.

Summary

  • The long–term structural growth story in emerging markets remains intact. These areas of the world will likely continue to face cyclical headwinds, but things appear more favorable on a secular basis.
  • Headline risk is becoming less significant in emerging markets. Globalization and the broadening of investment opportunities has minimized the impact that regional and country-specific events have on the share prices of individual companies.

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INVESTMENT INSIGHTS  | 
March 2015
 |  FEATURING Noriko Honda Chen

Managements Are Key to Emerging Markets Investing

A portfolio manager discusses her approach when seeking emerging markets investments, emphasizing strong management teams willing to allocate capital to shareholders.

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MARKET COMMENTARY  |  March 2015

World Markets Review for February 2015

Global stocks rallied amid signs of moderate economic growth in the U.S. and Europe, new central bank stimulus measures around the world, and a last–minute debt reprieve in Greece. Energy and materials stocks advanced as oil prices stabilized and moved slightly higher. Utilities stocks retreated, along with high–quality bonds, as better economic data fueled investor fears of higher interest rates. The U.S. dollar gained against the euro, the yen and most other currencies.

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MARKET COMMENTARY  |  February 2015

World Markets Review for January 2015

Global stocks posted mixed results as Europe rallied on aggressive new stimulus measures while U.S. equities slumped amid slowing economic growth and disappointing corporate earnings. Telecommunications stocks enjoyed the best returns, boosted by M&A activity, while the energy sector continued to suffer from declining oil prices. Bonds rallied on safe-haven buying spurred by economic and political uncertainty in some parts of the world. The dollar made strong gains against the euro, but fell versus the yen and the Swiss franc. 

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INVESTMENT INSIGHTS  |  January 2015  |  FEATURING Jonathan Knowles

A New Wave of Innovation

In the first 10 years of my career, in the 1990s, there was a lot of innovation in the health care sector. Then in the first decade of the 2000s, there wasn’t much innovation. Perhaps one or two companies had great drugs. We saw a lot of consolidation among the big companies.

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INVESTMENT INSIGHTS  |  January 2015  |  FEATURING Justin Toner

Companies Around the World Will Hitch a Ride on Driverless Cars

Carmakers Are Testing Autonomous Cars Around the World

Source: Chris Bryant and Andy Charman, “Race Is On to Build World’s First Driverless Car,” October 13, 2014. Used under license from Financial Times. All rights reserved. Capital Group is solely responsible for providing this abridged version of the original illustration and The Financial Times Limited does not accept any liability for the accuracy or quality of the abridged version.

Millions of self-driving cars may be on the road by 2035

Long a staple of science fiction and futuristic prediction, self-driving cars are on the verge of becoming a reality. 

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INVESTMENT INSIGHTS  |  January 2015  |  FEATURING Barry S. Crosthwaite

Energy Independence: The Dream Is Becoming a Reality

U.S. Oil Production Has Transformed the Energy Map

Source: U.S. Energy Information Administration. Data represent thousands of barrels per day (bpd) for the month of July 2014. The data for Louisiana and the United Kingdom include offshore production.

If Texas were a country, it would be the world’s eighth largest oil producer

In January 2007 the U.S. Senate Committee on Energy and Natural Resources convened a panel of energy and foreign policy experts to discuss the “Geopolitics of Oil.” Most of the experts had one word to describe America’s energy future: bleak. 

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INVESTMENT INSIGHTS  |  January 2015  |  FEATURING Jonathan Knowles

Innovation Opening New Fronts in the War on Cancer

Many Pharmaceutical Companies Are Investing Heavily in Research and Development

Sources: For left chart (“worldwide pharmaceutical R&D [research and development] spending”), World Preview 2014, Outlook to 2020, June 2014, EvaluatePharma. For right chart (“largest 25 sellers/drug sales by disease”), Genetic Engineering & Biotechnology News, March 2014. Industry sales for pharmaceutical R&D spending are based on the top 500 pharmaceutical and biotech companies. Forecast pharmaceutical R&D spending is based on a consensus of leading equity analysts’ estimates for company level R&D spending, extrapolated to pharmaceutical R&D when a company has non-pharmaceutical R&D activity. The “cancer” category for the largest 25 drug sellers includes all sales of one drug that is also used selectively in the treatment of inflammation. “COPD” stands for chronic obstructive pulmonary disease. The “other” category includes treatments for multiple sclerosis, HIV and high cholesterol, among other conditions.

Increased R&D spending could lead to more breakthrough drugs

Not so long ago, the prognosis for anyone diagnosed with cancer was generally grim. 

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INVESTMENT INSIGHTS  |  January 2015  |  FEATURING Noriko Honda Chen

Money Is Setting a New Speed Record

Incomes in Developing Countries Are Growing Quickly

Source: Adapted exhibit from Urban World: Cities and the Rise of the Consuming Class, June 2012, McKinsey Global Institute, www.mckinsey.com/mgi, McKinsey & Company. Time to increase per capita GDP is in purchasing power parity terms from $1,300 to $2,600. Per capita GDP is a measure of the total output of a country that takes the GDP and divides it by the number of people in the country. Per capita GDP is useful when comparing one country to another because it shows the relative performance of the countries. A rise in per capita GDP signals growth in the economy and tends to translate as an increase in productivity. 

The axis breaks (double, jagged lines) represent a break in a graph or scale. This symbol is used to show a break in the intervals on the X (horizontal) or Y (vertical) axis in charts that illustrate a wide range of data or include one number that is significantly larger than others in a series.

Spreading the wealth: Income is growing faster than at any time in history

Money is setting a new speed record in many parts of the world.

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INVESTMENT INSIGHTS  |  January 2015  |  FEATURING Rob Lovelace

The Future Looks Bright

Flying cars? No, sorry. Hoverboards? Probably not, although there is progress on that front. The future, it seems, isn’t going to be filled with all the fantastic things people have dreamed up. But it is going to be remarkable.

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INVESTMENT INSIGHTS  |  January 2015  |  FEATURING Brad Barrett

Welcome to the Revolution

Technology Has Brought About a Surge in Economic Growth

Source: Adapted exhibit from Disruptive Technologies: Advances That Will Transform
Life, Business, and the Global Economy
, May 2013, McKinsey Global Institute, www.mckinsey.com/mgi, McKinsey & Company.

Per capita GDP is a measure of the total output of a country that takes the GDP and divides it by the number of people in the country. Per capita GDP is sometimes used as an indicator of standard of living, with higher per capita GDP being interpreted as having a higher standard of living. 

The axis breaks (double, jagged lines) represent a break in a graph or scale. This symbol is used to show a break in the intervals on the X (horizontal) or Y (vertical) axis in charts that illustrate a wide range of data or include one number that is significantly larger than others in a series.

The Digital Revolution is transforming the world and lifting mankind to a new level

A new revolution is under way, one that has the power to transform the way we live and work. 

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MARKET COMMENTARY  |  January 2015

World Markets Review for 2014

Global stocks rose for the third year in a row, advancing amid healthy corporate earnings, resurgent M&A activity and massive central bank stimulus measures. Defensive stocks generally outpaced cyclical sectors as shares of utilities and health care companies posted double-digit gains. Late in the year, sharply falling oil prices hurt energy stocks and the economies of oil-producing nations. Bonds rallied, generating the best returns since 2011, as interest rates plummeted around the world. The dollar posted strong gains, rising against the euro, the yen and most other currencies.

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MARKET COMMENTARY  |  January 2015

World Markets Review for Fourth Quarter 2014

Global stocks advanced against a backdrop of falling oil prices, a financial crisis in Russia and accelerating U.S. economic growth. The decline in oil prices provided a boost to consumer spending, but contributed to economic woes in Russia and other oil-producing nations. Energy stocks plummeted, while the consumer discretionary and utilities sectors rallied. Bond prices rose as interest rates tumbled to new lows for the year. The dollar posted strong gains against the euro, the yen and most other currencies. 

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MARKET COMMENTARY  |  November 2014

World Markets Review for November 2014

Global stocks advanced amid a strengthening U.S. economy and heightened economic stimulus measures in Europe, Japan and China. Information technology and consumer-related stocks rallied, while the energy sector was hit by falling oil prices. Emerging markets fell slightly, pressured by fears of higher U.S. interest rates and lower commodity prices. Bond markets generally posted modest gains as inflation expectations remained muted. The dollar rose against the euro, the yen and most other currencies.

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INVESTMENT INSIGHTS  | 
August 2014
 |  FEATURING Jonathan Knowles

Outlook for India Is Better Following Elections

Capital Group portfolio manager Jonathan Knowles discusses the opportunities in India with the election of new Prime Minister Narendra Modi.

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INVESTMENT INSIGHTS  | 
August 2014
 |  FEATURING Jonathan Knowles

Despite Challenges, Investment Opportunities Abound in Africa

Portfolio manager Jonathan Knowles discusses how investing in Africa presents challenges as well as significant opportunities.

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INVESTMENT INSIGHTS  |  July 2014  |  FEATURING Rob Neithart

Rob Neithart Discusses His Outlook for Emerging Markets Bonds and Currencies

How do you view the recent sell-off in emerging markets bonds and currencies?

This market sell-off is different from others since the financial crisis of 2008. The previous sell-offs were generally caused by concerns that the global economy would experience a liquidity crunch and enter recession, or that Europe would break up. So, they were based on fears of weaker economic activity, potential default in Europe and more deflationary scenarios.

This most recent sell-off is not due to that at all. No one is forecasting a global recession. This is the first sell-off due to concerns that the U.S. economy might be strong enough to induce a change in policies so that interest rates will be reset and that quantitative easing will be unwound to more normal levels. This sell-off is also very heavily concentrated in the emerging markets and has affected all emerging markets assets — currencies, bonds and stocks.

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MARKET COMMENTARY  |  July 2014

World Markets Review for Second Quarter 2014

Global stocks enjoyed moderate gains, supported by accelerating M&A activity and fresh evidence that the U.S. economy was rebounding from a harsh winter. Energy stocks rallied on fears of a potential oil and gas shortage amid continuing turmoil in Iraq and Ukraine. Bonds also benefited from a flight to quality as interest rates tumbled in developed markets. Emerging markets stocks rose sharply as political uncertainty subsided in some nations.

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INVESTMENT INSIGHTS  |  June 2014  |  FEATURING Christopher Thomsen

Portfolio Manager Christopher Thomsen: Investing in the Growth of the Asian Consumer

Returns (December 31, 2011–April 30, 2014) Valuations (December 31, 2011–April 30, 2014)

China internet and Macau gaming stocks have been strong over a multiyear period, notwithstanding the recent correction. Valuations for these stocks seem reasonable given their long-term growth prospects.

Source: RIMES. Chinese internet represents an equal-weighted basket of Tencent, Naspers, NetEase, Ctrip, Baidu and Qihoo. Macau gaming represents an equal-weighted basket of Wynn Macau, Galaxy Entertainment, SJM Holding, Sands China, Melco Crown Entertainment and MGM China Holdings.


Your portfolios tend to have a strong tilt toward Asia, particularly the Asian consumer. Can you share some of your thinking?

I grew up in Hong Kong, Manila and Tokyo, so I have always had a passion for investing in Asia. Despite the recent economic slowdown in emerging markets, I continue to have strong conviction that the evolution of the middle class and structural growth of Asian consumption, driven partly by wage inflation and the transition to service economies, will remain one of the most important investment themes of this decade. If we can invest in stocks and sectors that benefit from this key theme, we can benefit our investors and shareholders. I like to invest in blue-chip domestic companies as well as multinational companies with high emerging markets exposure.

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MARKET COMMENTARY  |  June 2014

World Markets Review for May 2014

Global stocks advanced amid healthy corporate earnings and rapid-fire mergers-and-acquisitions activity in the U.S. and Europe. Technology and consumer discretionary stocks provided some of the best returns. Emerging markets stocks also gained, outpacing many developed markets. Bonds rallied as U.S. interest rates hit new lows for the year, reacting to mixed global economic data. The U.S. dollar rose against the euro and most emerging markets currencies.

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INVESTMENT INSIGHTS  |  April 2014  |  FEATURING Emme Kozloff

Invest Ahead of the Curve

It’s not often you can put a time stamp on a tipping point, but January 9, 2007, probably qualifies. That’s the day Steve Jobs introduced what would become one of the great success stories of corporate America: the iPhone.

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INVESTMENT INSIGHTS  |  April 2014  |  FEATURING Rob Lovelace

A New Revolution

There are periods of fundamental change that can transform the way we live and work. The Industrial Revolution, of course, changed everything from agriculture to the social structure, effectively ending the way mankind had functioned for thousands of years.

Today it seems as if we are in the middle of another revolution, and clearly these changes pose significant challenges and opportunities for long-term investors.

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INVESTMENT INSIGHTS  |  April 2014  |  FEATURING Brad Barrett

Going Mobile: “M-commerce” Drives E-commerce Higher

Sources: International Strategy & Investment, United States Census Bureau and comScore, Inc. Figures for e-commerce sales exclude autos, gas and restaurants.

A disruptive force and opportunity, smartphones boost online sales

  • For many people around the world shopping now means going online as well as going to the store. The acceleration of e-commerce during the past few years has been rapid and dramatic.

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INVESTMENT INSIGHTS  |  April 2014  |  FEATURING Emme Kozloff

E-commerce in China Has Soared

Source: Exhibit from China’s e-Tail Revolution: Online Shopping as a Catalyst for Growth, March 2013, McKinsey Global Institute, www.mckinsey.com/mgi, McKinsey &Company. Reprinted by permission. The segment of e-commerce known as “e-tailing” represents consumer-facing e-commerce transactions. The sellers may be larger businesses (B2C) or microbusinesses and individuals (C2C). McKinsey’s definition of e-tailing excludes online job search services, financial services and billing services. E-tailing market data also exclude online travel. Japan’s compound annual growth rate covers 2005-2011.

China has become one of the world’s most wired retail markets in just a few years.

  • E-commerce has become a powerhouse industry in China. Although online shopping is just in its infancy, e-tailing produced more than $190 billion in sales in China during 2012, and that may be just the beginning.

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Sources: Bloomberg, comScore, Nikkei, The New York Times, The Wall Street Journal, SoftBank 2013 annual report and Yahoo! Q4’13 Financial Highlights, January 28, 2014. Figures for Black Friday, Cyber Monday and Singles’ Day represent total one-day online sales in 2013. SoftBank and Yahoo! Percent stakes in Alibaba are as of January 2014.

Only the lonely? Alibaba rang up $5.7 billion in online sales last year on “Singles’ Day”

  • It turns out 1 may not be the loneliest number after all. In China, the unmarried celebrate their status on “Singles’ Day” by showering themselves and each other with gifts. Singles’ Day is observed on November 11, which is 11/11, or four lonely ones. But the day isn’t just for lonely hearts. Singles’ Day has evolved into an online shopping spree without equal, and that’s certainly cause for celebration at China’s Alibaba.
  • Alibaba, an e-commerce company, reported that on Singles’ Day last year, it had 402 million unique visitors to its sites.

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INVESTMENT INSIGHTS  |  April 2014  |  FEATURING Paul Li

Smartphone Sales Topped 1 Billion in 2013

Sources: Gartner, Inc. and IHS iSuppli. Data represent worldwide units shipped.

Next up for shoppers: The tablet boom gives rise to “couch commerce” 

  • The smartphone market passed several milestones in 2013. For the first time, more than a billion smartphones were sold worldwide. Another first: Sales of smartphones exceeded the more basic, and usually cheaper, feature phone.

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INVESTMENT INSIGHTS  |  April 2014

Dividend Payments Soared to Another Record in 2013

Sources: Standard & Poor’s and FactSet. Data for the S&P 500 dividends represent four-quarter sums. The list of top 10 includes companies with preliminary reporting status.

After reaching $300 billion for the first time, dividends may be headed higher in 2014

  • S&P 500 companies paid out a record $311.8 billion in dividends last year. The total marked a 10.8% increase from the previous year, and also the first time dividends surpassed $300 billion.

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INVESTMENT INSIGHTS  |  April 2014  |  FEATURING Andrew Suzman

As Emerging Markets Evolve, a New Opportunity for Income Develops

Source: RIMES. United States, emerging markets, and Europe and Canada represent the MSCI USA, Emerging Markets, EAFE (Europe, Australasia and Far East) and Canada indexes, respectively. Data are as of December 31, 2013.

Expansion of dividend culture abroad offers additional dimension to international investing 

  • International equities aren’t always associated with dividends, but a growing number of companies from Asia to Europe have initiated or raised dividend payments in recent years. These companies now represent an increasingly important element of international investing, especially for investors seeking income during retirement.

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INVESTMENT INSIGHTS  |  April 2014  |  FEATURING Rob Lovelace

American Gusher: U.S. Oil Production Set to Surpass Saudi Arabia

Source: U.S. Department of Energy, Energy Information Administration. Tight oil is embedded in low-permeable sandstone, carbonate and shale rock; shale oil is a type of tight oil.

Now that drillers can loosen up “tight oil,” American crude is soaring

  • The energy industry in the United States is in the midst of an extraordinary transformation, and the changes may have the potential to redefine America’s economic future.

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INVESTMENT INSIGHTS  |  April 2014  |  FEATURING Kaitlyn A. Murphy

The Driverless Car May Be Just Down the Road

Source: © 2014 Morgan Stanley.

The auto industry is committed to making self-driving cars a reality

  • At the 1939 World’s Fair in New York, one of the most popular exhibits was called “Futurama,” which depicted a city where radio-controlled cars moved people safely along automated highways to vast suburbs. The exhibit was sponsored by the General Motors Corporation.
  • Today, “Futurama” is nearly upon us. Numerous automakers, and several technology companies, are working on vehicles that would use an array of sensors and massive amounts of data to navigate roads without a human driver. 

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INVESTMENT INSIGHTS  |  November 2013  |  FEATURING Gerald Du Manoir & Michael Cohen

Finding Capital Appreciation Opportunities in International Markets

International equity markets have had a strong run over the past two years. What are the investment opportunities today for portfolios focused on capital appreciation? How does that objective influence how portfolio managers and analysts are thinking about investment opportunities in our international equity portfolios? 

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INVESTMENT INSIGHTS  |  October 2013  |  FEATURING Mark Denning

Finding Investment Opportunities in Europe’s Recovery

Mark Denning, a portfolio manager in American Funds EuroPacific Growth Fund and other funds, shares his views on Europe’s recovering economy and how he prefers domestically oriented European companies. He also discusses:

  • Why he is warming up to the airline industry
  • Potential value in pharmaceutical companies developing new types of cancer therapies
  • Opportunities in the wake of the recent slide in emerging markets
  • European banks may be underestimated by the markets
  • Japan’s corporate sector and its need to show greater profitability
  • Why he pays attention to “terminal multiples” and avoids deep cyclicals. 

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INVESTMENT INSIGHTS  |  October 2013

Update on Indian Bonds

Bond Market in India Poses a Challenge to International Investors.

Regulatory hurdles and a complex registration process make it difficult for investors outside the country to purchase Indian government bonds. As market regulators seek to liberalize the process, Capital Group’s investment professionals have several options available to access the market both directly and indirectly.

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INVESTMENT INSIGHTS  |  October 2013  |  FEATURING Rob Neithart & Shaw B. Wagener

The Potential for New Opportunities in Emerging Markets

Earnings Growth for Companies in the MSCI EM and MSCI World Indices

Emerging markets corporate earnings have disappointed in recent years but nonetheless have outpaced developed markets.

Source: RIMES. As of July 31, 2013.

Portfolio managers Shaw Wagener and Rob Neithart discuss investment opportunities in the emerging markets following the market declines from May to August 2013. They address why the repricing of emerging markets assets during this time differs from 1997 and 2008. Among their observations:

  • The emerging markets are not likely to experience a large-scale balance-of-payments crisis.
  • Countries with large current account deficits are nonetheless vulnerable.
  • Many developing economies need deep structural reforms.
  • Small-cap and mid-cap stocks continue to be of interest.
  • Many local currency debt markets are attractively valued.
  • Growth prospects for developing economies are still better than those of advanced economies.

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INVESTMENT INSIGHTS  |  September 2013

New Thinking About Global Asset Allocation

Institutional investors have embraced global asset allocation (GAA) strategies as a way to pursue returns with low correlation to traditional sources of investment results. To date, their searches have been limited to risk-based and tactical, returns-based asset allocation strategies.

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INVESTMENT INSIGHTS  |  July 2013

Shadow Banking in China

Shadow banking fears and financial system reform may provide opportunities in China’s banks.

A brief spike in the Shanghai Interbank Offered Rate (Shibor) and a warning from the International Monetary Fund about the risks building in China’s financial system have focused investor attention on credit creation outside the traditional banking system, or “shadow banking” as it is often called.

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INVESTMENT INSIGHTS  |  July 2015

A Standard for International Investing

Experienced Investors

International investing has deep roots within our organization, dating back to 1953 when we made our first investment outside the United States in Royal Dutch Petroleum. About a decade later, we created what has now become an important benchmark for measuring international results: the MSCI EAFE Index. Today, Capital is one of the largest active managers of international equities in the U.S. and offers five distinct investment strategies across the risk spectrum, from broader strategies with significant allocations to emerging markets, to more conservative strategies that focus on income. 

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INVESTMENT INSIGHTS  |  May 2013

The Power of Emerging Markets Linkers

Achieve diversification and return potential within an inflation-hedge basket.

U.S. institutional investors are exploring investments in strategies that hedge against the risk of rising inflation in an environment of expansionary monetary policy. These strategies often consist of investments in inflation-protected securities such as U.S. Treasury Inflation-Protected Securities (TIPS) as well as real estate and commodities. Emerging markets inflation-linked bonds (or “linkers,” as they are often referred to) can provide investors with diversified sources of inflation protection and return.

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INVESTMENT INSIGHTS  | 
January 2013
 |  FEATURING Victor D. Kohn

The Emerging Markets Equity Universe Will Continue to Evolve

Portfolio manager Victor Kohn expects the emerging markets universe to continue to evolve as new opportunities become available to foreign investors, and some countries migrate to developed markets.  

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Emerging markets debt has evolved as an asset class in recent years as local currency bonds and dollar-denominated corporate debt have become much larger parts of the overall universe. Financial crises invariably force investors to reconsider long-held beliefs about risk. The bursting of the debt bubble in 2007 and the resulting deterioration in public finances across the developed world has led to a reappraisal of sovereign and credit risk, particularly in the emerging markets.

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INVESTMENT INSIGHTS  | 
January 2013
 |  FEATURING Victor D. Kohn

Role of Emerging Markets in a Broader Equity Asset Allocation Program

Portfolio manager Victor Kohn explains why he believes emerging markets equities should play a fundamental role in investment portfolios.

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INVESTMENT INSIGHTS  | 
December 2012
 |  FEATURING E. Luke Farrell

A Unique Asset Class

Investment specialist Luke Farrell explains why he believes emerging markets debt will remain a unique asset class for the forseeable future.

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INVESTMENT INSIGHTS  | 
December 2012
 |  FEATURING E. Luke Farrell

Currency Risk and Market Liquidity

Investment specialist Luke Farrell explains how we balance strategic currency investments and risks associated with market liquidity to add value to portfolios.

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INVESTMENT INSIGHTS  | 
December 2012
 |  FEATURING Shaw B. Wagener

Emerging Markets Debt Continues to Grow and Mature

Portfolio manager Shaw Wagener explains how readjustments in emerging markets in the late 1990s have resulted in a diverse set of investment opportunities for long-term investors.

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INVESTMENT INSIGHTS  |  December 2012  |  FEATURING Luis Freitas de Oliveira

Emerging Markets Portfolio Manager Luis Freitas de Oliveira

In this Q&A, Luis Freitas de Oliveira discusses his views on opportunities in China and the evolution of Brazil’s financial markets. He also talks about his approach to investing in an uncertain macroeconomic environment as well as his responsibilities as a portfolio manager in Capital’s Emerging Markets Total Opportunities and emerging markets equity strategies.

Luis has a background in financial services as a corporate banker in Brazil and as an analyst covering emerging markets banks. He has been involved with Capital’s global emerging markets activities since he joined the company in 1994.

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INVESTMENT INSIGHTS  |  September 2012

Emerging Markets Corporate Debt: A Maturing Asset Class

In recent years, emerging markets corporate debt has become a driving force in the fixed-income markets of developing nations as the sector has grown into a large, broadly diversified universe of investment grade and high yield securities. The EM corporate market is primarily dollar-denominated, allowing investors to mitigate most of the currency risk. And, importantly, the bonds typically offer significantly higher yields than comparable debt issued by companies in developed nations. While the liquidity premium comes with some unique sovereign- and credit-specific risks, experienced investors can seek to reduce those risks through robust global credit research. The result can be a dollar-denominated corporate bond portfolio, broadly diversified across countries and industries, that can capture the growth and improving credit profile of a broad range of corporate issuers.

Although generally less familiar to investors than emerging markets sovereign debt, EM corporate bonds are coming to market at more than double the pace of their sovereign counterparts.

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INVESTMENT INSIGHTS  |  July 2012

Emerging Markets: Accessing the Next Frontier

The maturing of emerging markets equities as an asset class in recent years has left some investors wondering what the next big investment opportunity will be. As a result, many investors have turned their attention to relatively untapped markets like Myanmar or Mozambique that have abundant natural resources and prospects for rapid economic growth. While the expansion of frontier-market economies offers the potential for opportunities in the areas of infrastructure development, commodities, financial services, telecommunications and consumer products, investing in these smaller, less efficient markets also involves a number of challenges and risks. The total market capitalization of the universe is also quite small, adding to the difficulty of investing in the frontier markets as a separate, dedicated asset class.

Capital Guardian has a long history of uncovering opportunities in developing economies and continues to devote substantial time and effort into researching all markets at their earliest stages of development.

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Aggregate Asset Mix of the Top 1,000 DC Plans as of September 30, 2011

Sources: Pensions & Investments, February 6, 2012; Rimes

Most defined contribution participants have minimal exposure to investments outside the U.S. and are not exposed to the long-term growth potential of some of the world’s most dynamic companies and industries. Just as defined benefit (DB) plans did in the 1990s, defined contribution (DC) plans should consider moving away from a largely U.S.-centric investment view to pursue potentially better absolute and risk-adjusted returns. Plan sponsors can encourage this by providing a balanced menu of investment choices that include international, global and even emerging markets equity options in their DC lineups.

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INVESTMENT INSIGHTS  |  June 2011  |  FEATURING Laurentius Harrer & Shaw B. Wagener

Q&A With the Portfolio Managers of Emerging Markets Total Opportunities

How would you describe the objective of Emerging Markets Total Opportunities (ETOP) and its evolution as a strategy?

Shaw: The key to this strategy is its investment objective of trying to achieve equity-like returns with much lower volatility. We came to that objective after talking to clients who said emerging markets equities are interesting, but the return comes at the very high price of sleepless nights and high volatility. We concluded that we needed more flexibility and a process that would allow us to use that flexibility.

Our competitive advantage as an investment management firm is that we manage both emerging markets debt and emerging markets equities. We also have some insight into private equity. All of our ideas in these areas are generated and tested through our investment and research process. Nothing is siloed — the insights we gain in one area influence insights in another, so that we’re better in each one of those individual areas.

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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the funds’ characteristics statement, which can be obtained from a financial professional or your relationship manager, and should be read carefully before investing.  

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.  

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. The information provided is intended to highlight issues and not to be comprehensive or to provide advice. Any reproduction, modification, distribution, transmission or republication of the content, in part or in full, is prohibited.