New York, USA – Diversification proved to be a bright spot during a period of market reversals in the third quarter, with international equities experiencing growth fueled by value and cyclical shares as financial conditions improved across most developed markets. The MSCI EAFE Index rose by 7.26%, with the MSCI EAFE Small Cap Index and the MSCI Emerging Markets Index also posting gains of 10.54% and 8.72%, respectively.
In regional terms, North America, Asia Ex Japan, and the United Kingdom outperformed the index, while Europe Ex U.K. and Japan showed solid gains but slightly underperformed due to currency volatility. Notably, Chinese equities surged by 23.49% towards the end of the quarter following Beijing’s announcement of aggressive stimulus measures, lifting the performance of broader emerging markets.
Market activity in the third quarter was marked by sharp reversals, where previously underperforming markets like Hong Kong saw significant turnarounds after large stimulus packages were unveiled by Chinese officials. The quarter also saw a flurry of trading activity, particularly notable for China-focused sectors like materials which experienced significant upward movements.
France faced ongoing political drama with a new prime minister proposing additional corporate tax increases to address a growing budget deficit, impacting French stocks. The quarter concluded with a 50 basis point rate cut by the Fed, leaving markets on edge ahead of the upcoming U.S. election and its potential impact on international trade. Additionally, the U.S. dollar weakened against major currencies throughout the quarter.
International growth stocks saw a 5.68% increase for the quarter but underperformed value stocks as market rotation away from previous high performers in healthcare and technology took place.
The ClearBridge International Growth EAFE Strategy outperformed the benchmark in the third quarter, benefiting from diversified investments beyond traditional high-growth stocks. The Strategy’s success was driven by strength in cyclical sectors like consumer discretionary, financials, materials, and information technology.
Portfolio positioning involved selling declining growth positions while upgrading to new ideas with better growth potential. The Strategy added new positions in Japanese companies like Terumo in the medical equipment sector, reflecting confidence in Japan’s efforts to boost profitability and shareholder returns.
Looking ahead, the Federal Reserve’s rate cut and China’s stimulus measures are expected to support global economic activity in the coming months. Despite positive reactions in Chinese equities, more steps are needed to drive sustainable growth, with expectations of additional policy moves from China and the outcome of the U.S. elections shaping the path of recovery.
Overall, the performance of the ClearBridge International Growth EAFE Strategy reflects the benefits of a diversified approach to growth investing, combining core secular growth positions with opportunistic ownership of structural growers and emerging growth names.
