News & Insights

Key takeaways:

• Central bank rate divergence is desynchronizing economies and giving U.S. investors exposure to different business cycles.
• Dollar weakness against other major currencies is boosting the returns of many international stocks.
• Non-U.S. stocks are trading at a 35% discount to the S&P 500.
• Quality businesses in Europe and China are undervalued despite strong fundamentals.
• Infrastructure suppliers in Asia and Europe provide AI exposure beyond US tech stocks.
• Catalysts are converging for consumption-driven growth in emerging markets.
• Channing Global limits downside risk by targeting businesses with fortress balance sheets whose stocks are trading at 20-40% below intrinsic value.

U.S. stocks have delivered exceptional returns for more than a decade, outperforming most global equities. But with the U.S. market’s extended run stretching valuations, we believe, now more than ever, it’s time for investors to consider complementing their U.S. holdings with global equities.

“Recent shifts in economies and markets around the world are creating opportunities we haven’t seen in years.”

Recent shifts in economies and markets around the world are creating opportunities we haven’t seen in years. In this post, Channing Global Advisors Portfolio Manager Ron Holt, pinpoints three major trends that are creating opportunities for US investors.

Central banks are moving in opposite directions

Central banks are no longer marching in step. The European Central Bank has cut rates several times in the past year while the Federal Reserve has continued to hold them higher. And Japan is moving rates up from negative territory.

We can’t predict the future, but it’s fair to expect there’ll be differences in the economic performance of a wide range of countries. Interest rate discrepancies will also affect the underlying sectors of domestic economies in different ways. Financials, consumer goods, and real estate, for instance, will likely respond differently to local rate changes.

Rising trade tariffs around the world could amplify differences in local and regional business cycles. Such discrepancies are likely to be particularly evident short term as local product providers adjust their pricing to accommodate new tariffs.

For investors, this divergence is healthy. It gives U.S. investors exposure to business cycles that aren’t tied to the U.S. economy or markets. When the U.S. economy and markets are performing well other territories are likely to lag. Conversely, if U.S. performance slows, some international economies may pick up. Holdings in global equities provide opportunities for both asset growth and risk mitigation.

Currency moves as a result of differing central bank approaches are another advantage. U.S. investors holding stocks that earn in euros, sterling, or yen, for example, have benefited from the strength of those currencies this year. The dollar has depreciated about 10% against other major currencies since the start of 2025 and that’s boosting the returns of many of our international stocks.

Where we're finding valuation gaps

Non-U.S. stocks are currently trading at a 35% discount to the S&P 500 despite strong economic performance in several markets.

Europe and emerging markets, particularly China, offer quality stocks at attractive valuations. Europe is benefiting from monetary stimulus and fiscal spending, which is boosting infrastructure investment, while China looks set to gain from rising consumer expenditure.

One example: Alibaba. We felt it was acutely mispriced when we looked at it 18 months ago. It had a market cap of around $175 billion while holding $75 billion in cash and generating free cash flow of around $25 billion. Its cash holdings offered plenty of downside protection. The market had overestimated the risk of doing business in China. The stock has recovered since and Alibaba remains a quality long-term business.

Valuation opportunities still exist in global markets. We don’t attempt to time the market. Instead, we continually search for quality businesses that have been overly discounted.

Two secular forces reshaping global markets

Two secular shifts are opening significant opportunities beyond U.S. borders: the rise of AI and emerging market consumption.

AI is driving significant capital deployment worldwide. But to see past the hype, investors need to focus on where real value will be created—not just technology itself.

We expect the market for AI products and services to split into two distinct ecosystems. One will use models developed in the U.S. and other countries in the West. The other, will use models built in China.

These AI ecosystems will require infrastructure, such as data centers, cooling systems, power grids, and plenty of semiconductors. Companies across Asia and Europe participate in the supply chains of both ecosystems. They offer investors wider exposure to the benefits of AI than a portfolio of only U.S. stocks.

At the same time, growing affluence within emerging markets is set to spur strong consumer consumption. Such a surge in spending would boost economic growth in countries such as China and India, representing nearly three billion consumers.

Although growth has been slow in the past, catalysts for an upswing are beginning to converge. Social safety nets are improving, retail savings are high, stock markets are creating wealth, and consumer confidence is rising.

These trends don’t play out overnight. But for patient investors, they offer long-term asset growth and risk mitigation — both of which can strengthen portfolios heavily weighted toward U.S. equities.

How we find mispriced quality

At Channing Global, we search for market leaders trading at 20% to 40% discounts to intrinsic value that have fortress balance sheets. These companies operate in large end-markets, generate high returns, and have defensible competitive positions that allow them to reinvest at attractive rates over time.

We favor businesses with high cash holdings, low leverage, and the ability to generate cash even at the bottom of business cycles. Good valuation analysis limits downside risk. But we don't rely solely on discounted cash flow. Every valuation technique has weaknesses. We also examine how the market has historically valued an asset, how it's valuing it today, and whether fundamentals have changed enough to justify the difference.

Although we look to buy when valuations are depressed, timing is difficult. Markets can always go down further than you anticipate. Our first defense is balance sheet strength and valuations. If we can establish asymmetric risk and reward and see a reasonable path to adequate returns, we'll start building positions even if full recovery takes time.

Our average holding period is about three years, with portfolio turnover around 30% a year. But we often hold stocks much longer. As the risk and reward asymmetry diminishes for some companies and improves for others, we rotate capital.

“Global equities complement U.S. holdings with exposure to different economic cycles, valuation opportunities, and desynchronized markets.”

U.S. stocks have delivered outstanding returns for 15 years, but that success has concentrated risk and stretched valuations. Global equities complement U.S. holdings with exposure to different economic cycles, valuation opportunities, and desynchronized markets.

Our approach doesn't require perfect timing. We simply search for quality businesses trading at significant discounts, protect downside through balance sheet strength, and hold through multiple cycles.