Europe and the global equity markets
November 21, 2012
Based on our research, Europe remains the key driver of global equity market sentiment because of the interplay in that region between political initiatives and their economic consequences. These political objectives, including some measure of fiscal and banking union for the region, are still not firmly defined, and seem likely to take many months and rounds of feedback between policymakers and their respective constituents. What is clear to us is the extraordinary length to which politicians are prepared to go to assure the survival of the euro concept. The news flow in recent months reflects the policy initiatives necessary to put that determination into effect: building a credible legal infrastructure and institutional capability to bridge the gap to a more stable, sustainable union.
Success is not assured, though, and with this as a backdrop, we find little reason to expect a break in the pattern of volatile equity market movement until policy initiatives are coupled with substantial brightening of the economic picture. It remains to be seen whether such a solution is politically viable. While the importance of the political influence on economic prospects is perhaps most dramatic in the euro zone, it is clearly echoed in markets as diverse as the United States, China, Japan, and the United Kingdom, among others.
In assessing global equity markets, we believe the most distinctive element is the degree to which outcomes for market participants going forward are likely to be determined less by evolving business and credit cycles than by discrete policy decisions.
Regardless of how these policies develop, we feel markets must weigh — in real time — the significance of those actions as well as the uncertainty regarding their nature and timing. While this pattern persists, elevated market volatility and high levels of risk aversion seem likely to prevail. It is important to note, however, that these conditions are well recognized and discounted in current market valuations. As conditions normalize, we believe that the types of companies we seek — those with good free cash flow, strong balance sheets, and capable management teams — should assert themselves.
Ultimately, we believe that a successful company will succeed on the strength of its management, the competitiveness of its productive asset base, the quality of its balance sheet, and the structure of its global market positioning. Furthermore, the location of the company’s domicile is less important to us than its real underlying risk exposures. In combination with what we view as favorable valuations, we believe this type of company may provide one of the strongest, most consistent source for potential relative outperformance.
The Delaware Investments Global and International Value Equity team seeks to anticipate and benefit from the significant volatility that typically occurs within international and developing economies. It employs a rigorous analytical process to identify favorable stocks in these economies.
The views expressed represent the Manager’s assessment of the market environment as of November 2012, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager’s current views.
Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and their summary prospectuses, which may be obtained by visiting delawarefunds.com/literature or calling 800 362-7500. Investors should read the prospectuses and the summary prospectuses carefully before investing.
IMPORTANT RISK CONSIDERATIONS
Investing involves risk, including the possible loss of principal.
International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.
Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
Investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligations to update any forward-looking statements to reflect events or circumstances that occur after the date of this document.
Advisory services provided by Delaware Investments Advisers (DIA), a series of Delaware Management Business Trust (DMBT). DMBT is a federally registered investment adviser.
Neither DIA nor DMBT is an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of DIA or DMBT, unless noted otherwise.