Global Equity Income outlook: Diversification opportunities from international markets

Hi, my name’s Ben Lofthouse and I’m the Head of the Global Equity Income desk at Janus Henderson.

I’m going to bring you some of the thoughts today on the desk in terms of positioning and outlook for the year ahead. We’ve obviously had the inauguration of the new President in the US, so there’s an element where we know some things that we didn’t know going through the end of last year. There are also quite a few questions that people have about the markets. So, first of all, I’ll start with the markets.

What are the key trends you are seeing in equity markets?

There’s a lot of concentration in some markets. The US particularly has been noted for the fact that almost 40% of the market capitalisation comes from 10 stocks, and a lot of those stocks, most of them are technology stocks. This is the same for some other parts of the world, so parts of the emerging markets, for example, companies like Taiwan Semiconductor [Manufacturing Company] have become big parts of the indices and people’s benchmarks in emerging markets. But generally, for the world ex-US, sort of EAFE (Europe Australasia and Far East) funds, international funds [are] much less concentrated. The top 10 for example, for MSCI ex-US constitute only 10% or 11% of the whole market cap. So, we’re not seeing the same kind of concentration risks that we’re seeing in other parts of the world. So, that’s not something we’re as worried about.

The other thing that people are talking about is the fact that the concentration in a number of fast-growing stocks is making markets look expensive, equity markets looking expensive. Some of the valuations of the largest stocks are very high. It’s hiding the fact that a lot of parts of the market, both internationally and in the US are less expensive than they have been for several years and in some cases are getting to very attractive valuations.

What is your view on international valuations?

In terms of international markets and their valuations, there are reasons why they’re not as expensive as they’ve been at other times in history or versus the US. Firstly, growth has been lower in recent years. There’s been uncertainty around potential tariffs. This is very much in our mind and it’s hard to guess what happens, but many sectors are not impacted by tariffs. And, and what our approach has been, is to not try and second guess what’s going to happen but try and pick companies that we think aren’t going to be buffeted by the sentiment or the actual headwinds.

We’ve reduced sectors that are most impacted, so those that include things like the automotive sector and anything within the automotive chain. And then what we focused on is investing in areas like pharmaceuticals, financial services, telecommunications, even energy where there’s no direct exposure to tariffs.

What are the growth drivers in international markets?

The second thing I’d like to highlight is the fact that there’s more growth outside the US than people think. Generally, it’s more sector specific than it is about general GDP growth. Things like the insurance markets are growing very well, partly in response to the circumstances of the last few years where there’s been more, more claims, banks are benefiting from higher interest rates. You know, these are both quite domestic markets, they’re both more kind of services markets. These are sectors that are not particularly impacted by tariffs and concerns and, in many cases, they’re benefiting from higher interest rates.

In terms of interest rates, this is something [that’s] been very topical for the last few years. People are very focused on the [US] Fed and what they’re going to do. But interest rates outside the US are generally falling in most economies, which should help growth as the year goes on. And so, we’ve seen cuts in Scandinavia, Europe, Canada, many areas.

The areas of growth that do remain are often linked to either China or the Ukraine conflict. Very little is priced into markets for either of these situations getting better over the year, but it’ll be something I think investors should watch as the year goes on and that links into some other areas of the market that people are watching very closely, including inflation.

What opportunities are you seeing in the market?

Interest rates have gone back up to normalised levels. A lot of sectors have de-rated because of these higher rates. You know, many of us as investors have been talking about that risk for a number of years and I think for areas like real estate and utilities, a lot of that risk is now played out. They are sectors that we’ve had low exposures to for the last few years and we’re certainly looking there to see if there are interesting opportunities to add. But they’re just an example of the sectors that whilst markets have gone up in general, they have either traded sideways or gone down and they might provide interesting opportunities, particularly if interest rates start to come down.

What should income investors be aware of in 2025?

In terms of outlook, all in all, we’re cautiously optimistic for the year coming up. We do feel, as I said, it’s important to be diversified because there could be unexpected events. We continue to expect dividend growth for global companies to be good for the year. It’s going to be helped actually by large technology companies starting to pay more dividends, which we were encouraged by last year with the likes of Meta and Google. But we’re also encouraged by the relatively low valuations of companies in many sectors and regions around the world. So, you know, generally we are cautiously optimistic and we’re quite constructive on the outlook over the next few years. Thank you very much.