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Schwab's Kleintop: Avoiding Japan, Likes Europe Banks (Audio) · Bloomberg Intelligence

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  Speaker 1: I'm Catherine Cowdery. This is taking stock with pin Box
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  Speaker 1: and Kathleen Mays on Bloomberg Radio. Economic growth in the
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  Speaker 1: United States versus economic growth in the Eurozone. Eurozone GDP
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  Speaker 1: growth surprised to the upside in the first quarter, up
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  Speaker 1: six tenths of a percent. Go Ahead annualized that in
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  Speaker 1: order to compare it to the United States where two
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  Speaker 1: point four quarterly growth. Let's find out more from Jeff
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  Speaker 1: klein Top. He is the chief Global investment strategist for
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  Speaker 1: Charles Schwab and Come Company. He joins us from Boston,
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  Speaker 1: of course, home to Bloomberg twelve hundred and he can
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  Speaker 1: be followed on Twitter at Jeffrey Klinop. Jeff, thanks very
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  Speaker 1: much for being with us and start us off by
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  Speaker 1: giving us some details about economic performance in Europe. You bet,
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  Speaker 1: it's great to be with you. So here's the thing
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  Speaker 1: about Europe. Not a whole lot was expected for Q one,
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  Speaker 1: but we did see quite a rebound and lately we've
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  Speaker 1: actually just gotten the flash p M I numbers um
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  Speaker 1: and and it looks pretty good. In fact, Germany just
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  Speaker 1: saw a nice rebound, and we also got the i
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  Speaker 1: FO data, which is a big business survey over there
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  Speaker 1: in Germany's had also showed a nice upticks three months
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  Speaker 1: in a row. Now for the manufacturing economy in Germany
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  Speaker 1: coming back, it's good to see. And so you've got
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  Speaker 1: a broad based of support from consumer spending which is
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  Speaker 1: strengthening manufacturing sector coming back. This is important. Remember just
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  Speaker 1: a couple of years ago, gosh, less than a couple
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  Speaker 1: of years ago, Europe was in recession. So it's still
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  Speaker 1: earlier in a teconomic cycle, and we're seeing that vibrancy
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  Speaker 1: in better economic growth. But Jeff, there isn't a lot
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  Speaker 1: of this confined to Germany, in Europe's biggest economy, the
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  Speaker 1: economy that is benefiting so much from being part of
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  Speaker 1: the euro Area, very very export dependent. Much of the
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  Speaker 1: rest of Europe is not doing anywhere near this. Well,
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  Speaker 1: that's true. A lot of particularly southern Europe has has
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  Speaker 1: had a much tougher time than northern Europe has. UM.
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  Speaker 1: But you know, we are see broadly speaking, uh, the
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  Speaker 1: economy continues to move in the right direction. I think
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  Speaker 1: you want to be careful when you're investing in Europe
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  Speaker 1: to make sure you understand what you're getting exposure to. UM.
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  Speaker 1: You know, we like the financials within Europe, and that's
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  Speaker 1: naturally gonna orient you more towards the northern part of Europe,
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  Speaker 1: countries like Germany and France as opposed to the south.
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  Speaker 1: And and so you know, I think as you invest,
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  Speaker 1: you think about healthcare also another area in Europe that's attractive.
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  Speaker 1: That's uh, primarily northern Europe where you're going to find
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  Speaker 1: those health care companies, and that's where we're sending to
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  Speaker 1: focus on finding value. Hey, Jeff, is Spain by any
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  Speaker 1: chance and exception. I mean there's some investment opportunity you
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  Speaker 1: don't want to buy when it's already high. You know that.
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  Speaker 1: That's an interesting point. So Spain, Spain has shown some
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  Speaker 1: signs of turning the corner there have been labor reform
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  Speaker 1: recently implemented there and some increasing momentum in that economy,
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  Speaker 1: but the unemployment rate is still very high, so that
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  Speaker 1: economy has got a long way to go and is
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  Speaker 1: vulnerable to some risks. So while Spain looks attractive and
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  Speaker 1: many Spanish stocks look attractive from a valuation perspective, they
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  Speaker 1: do come with a lot of volatility, given the vulnerability
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  Speaker 1: to geopolitical shock or other economic shocks. We know, our
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  Speaker 1: colleague our stocks and are Dave Wilson. We were talking
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  Speaker 1: about the Euro Area Minister's meeting and you know, trying
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  Speaker 1: to help Grease stay on its feed and get through
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  Speaker 1: its debt payments and all that, but basically point out
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  Speaker 1: that the Greek stock market has been quite a performer.
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  Speaker 1: What do you think about that? Yeah, well, you know,
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  Speaker 1: some of that uh you know, rebound, a lot of
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  Speaker 1: it just reflecting just the risk. I mean it's interesting
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  Speaker 1: to see, you know, just make a parallel with with
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  Speaker 1: Brazil this year, right, I mean, you know, the economy
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  Speaker 1: took off on prospects for for change and reform, and
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  Speaker 1: ultimately it's a long road to recovery, both for Brazil
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  Speaker 1: and for Greece. And investors may be disappointed. Certainly, Greece's
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  Speaker 1: European country, but it's also an emerging market, and we're
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  Speaker 1: a little bit more cautious on the emerging markets, and Gosh,
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  Speaker 1: i'd include Greece and that given the very long road
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  Speaker 1: to recovery there. Jeff the Nikkai in Japan down nearly
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  Speaker 1: four percent so far this year. Invest in Japan or
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  Speaker 1: wait for perhaps another recession or another attempt to forestall
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  Speaker 1: a recession. Yeah, you know, Japan does not look very
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  Speaker 1: attractive to us. Japan's got a number of issues, including
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  Speaker 1: the uh, you know, deteriorating manufacturing sector. Unlike what we
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  Speaker 1: see going on in Europe where things are improving. Japan
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  Speaker 1: very dependent on China. China big customer of Japanese products
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  Speaker 1: in China seems to be slowing here once again as
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  Speaker 1: they maybe moderate some of the stimulus that they injected
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  Speaker 1: earlier this year, and that's going to be a drag
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  Speaker 1: on Japan, as is that stronger yen, which seems to
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  Speaker 1: be a real point of weakness for it. For that
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  Speaker 1: economy so much more focused from a developed market standpoint
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  Speaker 1: on Europe rather than Japan. Also, Jeff are was one
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  Speaker 1: of the reasons you're focusing on the rest of the
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  Speaker 1: world is that you see fewer opportunities now in the
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  Speaker 1: United States in the stock market. Well, you know, the
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  Speaker 1: US has UH is a little bit longer in in
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  Speaker 1: the twoth I mean, the economic cycle has gone on
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  Speaker 1: quite a bit. There's less momentum UH and and I'd
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  Speaker 1: say there's less room to grow profit margins in the US,
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  Speaker 1: whereas in Europe, for example, profit marches are still relatively low,
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  Speaker 1: a little bit below average. And so I think profit
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  Speaker 1: growth has a lot more momentum to it as we
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  Speaker 1: look to what's going on in Europe than than perhaps
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  Speaker 1: the US does. What about the Latin America, Jeff, are
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  Speaker 1: we waiting waiting and seeing what happens in Brazil? I mean,
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  Speaker 1: is that is that just the sort of a political
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  Speaker 1: issue at this point for investors, It seems to be
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  Speaker 1: Brazil very tied to to put all of Latin America
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  Speaker 1: very tied to both politics and commodity prices and pim
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  Speaker 1: you know, noticing recently, I'm notwithstanding oils move today, raw
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  Speaker 1: industrial commodity prices have started to roll over a little bit,
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  Speaker 1: and you know, talking about things we used to make
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  Speaker 1: other things from rubber and comport at ten and lead.
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  Speaker 1: They seem to be stabilizing after a pretty strong run
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  Speaker 1: up in prior months. That's bad news for commodity exporting nations,
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  Speaker 1: including those in Latin America. It's gonna be a tough
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  Speaker 1: ride for them. Okay, you're looking at stocks as you
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  Speaker 1: look globally. Are there any sovereign bond markets you like?
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  Speaker 1: Are there any corporate bonds or corporate bond markets in Europe, Asia,
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  Speaker 1: Latin America you like? We remained um focused on on
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  Speaker 1: the US for fixed income, not finding a lot of
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  Speaker 1: value overseas, still believing that dollar might be heading a
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  Speaker 1: little bit higher over the remainder of this year, say
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  Speaker 1: flat to higher, and that's a drag on your returns
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  Speaker 1: from international fixed income investing. So it isn't necessarily a
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  Speaker 1: credit view as much as it is a view on currency.
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  Speaker 1: Jeff Fer. Everyone wants to know when do you think
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  Speaker 1: they're going to raise interest rates? You know, we we've
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  Speaker 1: been saying that the Fed is likely to raise rates
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  Speaker 1: uh in the second half of this year. You know,
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  Speaker 1: we had thought maybe September. Perhaps that's a little bit
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  Speaker 1: earlier now, but the doors open to one, maybe even
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  Speaker 1: two rate hikes later this year. And that's uh. That's
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  Speaker 1: encouraging is that the FED finally feels the global economy
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  Speaker 1: is strong enough to do that. But it's negative news
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  Speaker 1: for the emerging markets. You know, earlier this year, the
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  Speaker 1: emerging markets were leading, leaving things higher. In fact, through
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  Speaker 1: the end of April they were up six or seven
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  Speaker 1: percent on the year. They've pulled all the way back
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  Speaker 1: here in the month of May as prospects for FED
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  Speaker 1: rate hikes have picked up. And that's because emerging market
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  Speaker 1: performance is so dollar dependent. The revival in the dollar
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  Speaker 1: after a slide earlier this year has been toxic for
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  Speaker 1: emerging market assets and really helped them underperformed. That maybe
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  Speaker 1: a recipe for the second half. Look for volatility and
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  Speaker 1: a lagging performance out of emerging markets. UH So, are you, then,
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  Speaker 1: um in the camp that thinks, uh a fedrate height
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  Speaker 1: could actually be the state destabilizing, especially overseas well. I
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  Speaker 1: think it could be. It could raise concerns and and
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  Speaker 1: and tighten financial conditions for some emerging market countries, but
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  Speaker 1: I'm not worried about a crisis. I we don't have
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  Speaker 1: the same type of UH dollar denominated debt emerging markets
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  Speaker 1: that we saw in nineteen nine, seven or nine that
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  Speaker 1: led to the global financial crisis. Back then, gosh, Back then,
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  Speaker 1: South Korea had eight percent of its debt denominated in dollars.
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  Speaker 1: Now it's eight. So it's a problem, but not a crisis,
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  Speaker 1: all right, Jeff clientop, thank you for joining us an
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  Speaker 1: investment look around the world. Jeff is chief Global investment
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  Speaker 1: Strategist at Charles Swab. He's up in Boston, home of
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  Speaker 1: Bloomberg twelve hundred. He likes European banks if it comes
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  Speaker 1: to fixed income. He's keeping his money, his client's money
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  Speaker 1: in the United States. I'm Kathleen Hayes along pim Fox.
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  Speaker 1: This is taking Stock on Bloomberg Radio.