It is important to note that the decline in international equity prices since the beginning of the year is not unusual in light of the widespread uncertainty regarding the U.S. economy. Clearly, until investors believe that the trough of the U.S. earnings cycle is in full view, stocks worldwide will have difficulty making significant headway. Nonetheless, we are confident that conditions are coalescing, that will underwrite solid gains in international equity markets later this year. However, there already have been at least 39 interest rate reductions worldwide, including three half-point cuts in the United States. Once unleashed, it would be highly unusual for a global liquidity cycle to stop or reverse.
History is clear about what usually comes next.
Several decades of data strongly suggest that it could be only a matter of time before heightened global liquidity flows ignite rallies in most equity markets and underwrite recoveries in slumping economies. In our view, the only question is how long it will take for the monetary fix to work its magic. We feel strongly that the onset of a new wave of global liquidity will eventually underwrite powerful gains in overseas markets. Accordingly, we believe that investors can best exploit the current period of uncertainty and economic slowness by taking carefully considered positions in those markets and sectors which are fundamentally sound and which stand to benefit from lower interest rates over the next several quarters. Argentina, which has been stuck in a recession for two years, recently named Domingo Cavallo as Finance Minister.