Global Markets Digest Slow Growth and Central Bank Caution
The second quarter of 2024 saw international equities, as measured by the MSCI EAFE Index, experience a slight lag. This was largely due to central banks’ cautious approach to interest rate cuts, amidst an uncertain economic environment. The eurozone economy has been growing, albeit slowly, with consumption supported by falling inflation and tight labor markets. However, the manufacturing sector has shown signs of stalling, leading to a mixed message from the S&P HCOB Composite Purchasing Manager Index.
Against this backdrop, the European Central Bank (ECB) decided to cut interest rates in June, despite a minor uptick in inflation in May. Meanwhile, President Macron’s call for a snap election in France sparked concerns about potential fiscal recklessness and the possibility of a left-wing, tax-and-spend coalition.
In the UK, a center-left government was elected, adding to market anxiety. The BNY Mellon International Stock Fund outperformed the MSCI EAFE Index for the quarter, with its average annual total returns ranging from 6.11% to 6.46% over the past 10 years.
Japanese equities had a dull quarter, with the yen weakening to levels last seen in the late 1980s. The economy shrank in the first quarter, due to the impact of inflation on consumption and muted manufacturing activity. China-related markets enjoyed a solid quarter, but concerns over the property sector, Sino-Western political tensions, and the China +1 phenomenon persist.
The fund’s top 10 holdings include Novo Nordisk, Taiwan Semiconductor Manufacturing, ASML Holding, and LVMH Moet Hennessy Louis Vuitton. Technology holdings were the largest contributors to both absolute and relative returns during the quarter, while consumer discretionary stocks were more resilient than their benchmark counterparts.
From a regional perspective, emerging markets were the largest relative contributor, while UK and Pacific ex-Japan stocks detracted from relative performance. The fund’s investment strategy focuses on bottom-up fundamentals, investing in financially strong, leading businesses that can adapt, innovate, and weather near-term headwinds.
Despite the cautious outlook, the fund remains optimistic about the prospects for global growth, albeit at a modest pace. However, the cumulative effects of higher prices on consumer wallets or stubborn inflation could undermine this benign scenario. The fund’s investment approach is designed to navigate these challenges and identify opportunities in a rapidly changing market environment.
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