Against the backdrop of heightened global economic uncertainty, global growth prospects have adjusted downward. As noted in the March 2025 OECD Economic Outlook Interim Report, global GDP growth is expected to moderate from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026, with higher trade barriers in several G20 economies and increased policy uncertainty weighing on investment and household spending.
Regionally, annual real GDP growth in the United States is projected to slow from its very strong recent pace to 2.2% in 2025 and 1.6% in 2026. Euro area real GDP growth is projected to be 1.0% in 2025 and 1.2% in 2026 as heightened uncertainty keeps growth subdued. Growth in China is projected to slow from 4.8% this year to 4.4% in 2026.
Impact of Further Trade Fragmentation
The U.S.’s ever-changing trade policy has been the catalyst for global economic uncertainty and the downward growth projections. As simulated by the OECD, an increase in bilateral tariffs on all non-commodity imports into the U.S., along with similar hikes in tariffs on non-commodity imports from the U.S. by other nations, could lead to a decline in global output of approximately 0.3% by the third year. In contrast, global inflation could increase by an average of 0.4 percentage points per year over the initial three years. Ultimately, this would have an adverse impact on corporate and household spending worldwide.
A Look at Value Investing
The shift in the global economy’s outlook has been reflected in the investment landscape. Examining the performance of the S&P 500 Growth Index for 2024, its return of 35.63% significantly outpaced those of the S&P 500 Value Index, the MSCI World Ex USA Growth Index, and the MSCI World Ex USA Value Index. However, year-to-date, given the change in both the U.S. and global growth, the MSCI World Ex USA Value Index has exhibited the most compelling return.
As mentioned in a previous article, growing uncertainty about U.S. economic policy has led to rising concerns about the possibility of a U.S. recession, resulting in a pivot towards international equities. The strong performance of value investing at this juncture is indicative of investors allocating their monies toward companies that are quality businesses trading below their actual worth.
Investing in International Value ETF
For Canadian investors seeking international value exposure, the CI First Asset Morningstar International Value Index ETF (Tickers: VXM/VXM.B) and Fidelity International Value Index (Ticker: FCIV):
The CI First Asset Morningstar International Value Index ETF is designed to replicate the performance of the Morningstar® Developed Markets ex-North America Target Value IndexTM, which invests in equity securities of the largest and most liquid issuers from countries classified by Morningstar as developed markets, excluding the U.S. and Canada. The fund’s holdings are based on valuations, such as low price-to-earnings and price-to-cash-flow ratios. As of February 2025, Japan is the largest geographical exposure (38.5%), with the Financial Service (17.7%), Consumer Goods (13.1%), and Industrial Services (13.1%) being the top three sector exposures.
The fund is available in as a CAD Hedged and Unhedged versions.
The Fidelity International Value ETF seeks to replicate the performance of the Fidelity Canada International Value Index, which invests primarily in equity securities of large and mid-capitalization foreign companies that have their principal business activities or interests outside of Canada or the U.S. and have attractive valuations. As of February 2025, Japan and the United Kingdom are the largest geographical exposures, at 23.5% and 21.6%, respectively. The Financial Services (31%), Materials (13.5%), and Industrial Services (11.6%) sectors are the top three sector exposures.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.