International hype

Global Equity indices are showing investors that the real performance to be made, at least so far this year, is out of the US. Peru, Mexico, Colombia or Japan have had a espectacular start of the year and are already showing double digit returns while the US has barely moved after a couple of strong years. Is that a dollar play or a valuation play? Or is it both? Is it a sign that the AI hype is taking a breather? It may seem so, as the valuation gap between the S&P500, which is heavily influenced by hyperscalers/Mag 7, and the other indices, perhaps more tilted towards Commodities and in Japan’s case government intervention, is closing, as a consequence of the rotation. The fact that the U.S. dollar is weakening, also pushes investors to international markets, and not only what has fallen so far, but the expectation of further weakening. It’s true that all those markets are very small and do not have the depth and liquidity of the US, and perhaps small flows can lift indices quickly and abruptly, but it appears the signal is clear: Cheaper is better, and it’s outside the U.S.

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