Developed Non-U.S. Equity Outlook

Lingering Pandemic Fears Cloud Global Outlook

As we head into the year’s final quarter, two questions dominate our outlook: How and when will the ongoing pandemic resolve? And, how will November’s U.S. elections alter the political, financial and economic landscapes?

The coronavirus outbreak has played out at varying speeds and durations across the globe. While the U.S. continues to lead the world in cases and fatalities, data suggests the current wave may be peaking. Also, in countries where cases have spiked, such as Spain, mortality rates have flattened. This may be due, in part, to younger patients, but we believe medical protocols have also improved. China, Southeast Asia and Europe appear to be emerging more quickly from the worst of the crisis, affording them more positive outlooks than the U.S. While U.S. equities regained their first-quarter losses, unemployment remains at historic levels and the economy lags as we await an effective vaccine.

Central bank accommodation and government stimulus have helped stabilize economies in China, Europe and the U.S. It remains to be seen whether these governments will provide the additional stimulus necessary for economies to return to pre-pandemic levels. 

The possibility of a second wave of the coronavirus further clouds the outlook. Many health experts warn the winter and traditional flu season in the Northern Hemisphere could spark a surge in cases. While it’s likely that governments will be better prepared for a recurrence, the effects on consumer confidence and economic activity could be severe. Additionally, we believe there’s little appetite for another economic shutdown, which could exacerbate the resurgence and prolong the effects of the outbreak.

Global corporate earnings growth remains negative but has been better than expected. But the outlook remains highly uncertain. In many cases, company management teams remain noncommittal in their guidance and, at best, are providing short-term outlooks only. We continue to seek companies whose strong underlying fundamentals help position them to weather the crisis. Businesses exposed to the stay-at-home economy (e.g., software, data center, cloud-based, and 5G networking companies) and those at the forefront of vaccine and therapeutics research remain attractive. As economies strengthen, we’re also finding consumer-oriented and cyclical companies with strong balance sheets and innovative product lines that could benefit from increased economic activity.

We see opportunities in companies that support remote working, mobile gaming and e-commerce. Pent-up consumer demand could support discretionary and staples companies as economies emerge from the slowdown.

U.S. Election Will Bring Bumpy Markets

We aren’t in the business of predicting election results. But we acknowledge that the outcome of an election as contentious as this one could have an outsized effect on global markets in the immediate term. Generally, stocks like continuity; uncertainty leading up to election day could unsettle markets and heighten volatility. There’s some expectation that a Biden presidency could roll back some of the Trump administration’s pro-business policies, which could weigh on corporate earnings. While there may be some truth to that, historical returns suggest the person living in the White House doesn’t affect stock performance as much as the overall makeup of the U.S. government. A Biden victory, coupled with a “blue wave” sweep of both houses of Congress, would make it easier to enact swift policy changes that could pressure stocks. These policy changes could include renewed corporate regulation, higher taxes on businesses and wealthy individuals, and higher government spending on climate change, education and health care. 

The election has implications beyond the U.S., of course. Tariffs, trade wars, regulations and supply chain disruptions can weigh on the global economy, an unwelcome development as economies begin to look beyond COVID-19. President Trump has made known his positions about China. And Joe Biden has expressed his intention to be a tough negotiator with China, though perhaps taking a less confrontational approach. China would reportedly prefer that Biden win.

Given the presidential candidates’ differing views on taxes, regulatory policy and other issues, we expect uncertainty about the election outcome to significantly affect global markets leading up to and immediately after Election Day.

Q4 2020 Investment Outlook Resources

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

International investing involves special risk considerations, including economic and political conditions, inflation rates and currency fluctuations.

Alternative mutual funds that hold a variety of non-traditional investments also often employ more complex trading strategies than traditional mutual funds. Each of these different alternative asset classes and investment strategies have unique risks making them more suitable for investors with an above average tolerance for risk.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. Current and future holdings are subject to market risk and will fluctuate in value.

Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.

Diversification does not assure a profit nor does it protect against loss of principal.

Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.

Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.

Past performance is no guarantee of future results. Mutual fund investing involves market risk. Investment return and fund share value will fluctuate. It is possible to lose money by investing in mutual funds. 

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

This information is for educational purposes only and is not intended as investment or tax advice.

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