The International Edge: Why It’s Working Now

T. Rowe Price’s Colin McQueen explores why international markets have gained renewed momentum and why the opportunity set outside the U.S. looks more compelling today than it has in recent years.

The discussion highlights how inflation, higher interest rates, industrial investment and corporate reform have helped support international earnings and valuations.

Key Insights

• Higher rates and inflation have supported European and Japanese banks, improving return on equity and strengthening shareholder returns.
• Growth has broadened beyond technology, with industrial companies benefiting from reshoring, infrastructure, defense, power generation and AI-driven investment.
• Japanese corporate reform and stronger international earnings growth have helped narrow the gap with the U.S. and support valuation improvement.

Video Transcript

Colin McQueen: Since the pandemic and the war in Ukraine, several major changes have helped level the playing field for international markets.

Deflation has shifted to inflation, and interest rates have moved from negative to positive across much of the world. That has had a meaningful impact on financial companies, especially banks in Europe and Japan, where positive interest rates have supported stronger business models, improved return on equity and better shareholder returns.

Growth has also broadened across the economy. During the prior decade, market leadership was concentrated in companies powered by intangible assets. More recently, conditions have improved for companies that make physical products, especially industrial companies.

Coming out of the pandemic, supply chain weaknesses and infrastructure needs became more visible. This has supported spending on reshoring, power generation, power grids, defense and AI-related infrastructure. Many industrial companies now have strong order books, which is pulling through demand for the materials needed to support those projects.

International markets tend to have greater exposure to these industrial and materials-oriented companies, which has helped broaden the source of profits growth.

A third factor is corporate restructuring, especially in Japan. A mix of incentives and pressure has encouraged companies to focus more closely on return on equity and the release of excess assets, helping support earnings growth.

Together, these forces have lifted international earnings growth from very low levels to a stronger pace. While still below the U.S., the gap has narrowed meaningfully, helping the valuation discount improve.

Read the full article for T. Rowe Price’s perspective on the forces supporting international markets and why the international edge may continue to matter.

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