The strong advance in international (global ex-US) equity markets this year slowed down in the final quarter as advanced-economy markets consolidated their substantial gains and some emerging markets gave back part of their earlier advances. Latin American markets were hit by weakness in commodity markets, weakness in the Brazilian economy, and Mexican concerns about its trade relations with the US. In Asian economies tech stocks followed the weakness in US tech stocks, but Asian economies continue to be the global growth leaders. As a whole, international markets are expected to close out 2017 with a 2% gain for the quarter and a 23% gain for the year. The gain for the European and Asian advanced economies in 2017 looks likely to be a little less, 21%. The annual gain for emerging markets is going to be greater, around 33% if South Korea is included as an emerging market or around 26% if South Korea is now considered to be an advanced economy.
The broad rally in global equity markets this year was based on an increasingly synchronized recovery in most economies, with many reaching full-employment performance. Global GDP growth this year looks likely to have reached a strong 3.7% pace, and a similar advance is projected for 2018. Growth in the advanced economies was about 2.2% while the advance in the emerging markets as a group was 4.7%, more than double the advanced economies’ growth. China’s and India’s economies continued to lead, with gains of 6.8% and 6.7%, respectively.
We are ending the year with our International Portfolio fully invested with overweights of emerging markets and, regionally, of Asia. Among advanced-economy markets we continue our overweight of Japan and of smaller-cap stocks. The robust outlook for the global economy accompanied with low interest rates leads us to think that the global bull market in equities will continue in 2018.