Capital Group Sees Opportunities in Non-US Stocks on Reform Push

Capital Group is currently favoring international equities over their US counterparts, citing significant opportunities arising from ongoing corporate governance reforms in markets like Japan and South Korea. The firm notes that international markets have demonstrated greater diversification and superior performance compared to US markets this year, according to an equity portfolio manager.

Analysis

Capital Group, a major asset manager, is signaling a strategic preference for non-US equities over their US counterparts, representing a notable shift in institutional positioning. The core of this thesis, as articulated by equity portfolio manager Noriko Chen, is the emergence of investment opportunities driven by structural corporate governance reforms in key international markets, specifically Japan and South Korea. This view is supported by the observation that international markets have demonstrated superior performance and greater diversification benefits compared to the US market year-to-date. The argument is not based on temporary market fluctuations but on fundamental, country-level improvements aimed at enhancing shareholder value, suggesting a potentially durable catalyst for outperformance in these regions.

Key Decisions for Investors

• Investors should review their current geographic allocation and consider increasing exposure to international equities, particularly in developed markets outside the US.
• A tactical focus on Japanese and South Korean markets is warranted, with due diligence on companies poised to benefit from ongoing corporate governance reforms and improved capital allocation policies.
• Monitor the relative performance of non-US vs. US equity indices to validate the trend, while also tracking the implementation and impact of the cited governance reforms on corporate behavior and shareholder returns.