Although better performance in the U.S. and U.K. is hardly a secret, this trend should persist in 2012.
M onetary policy in the U.S. and U.K. is much more proactive than in the euro zone and Japan. The euro zone is in the worst position, as it faces the combination of fiscal austerity and a dogmatic central bank. Monetary conditions are very tight in Europe, somewhat tight in Japan, but highly stimulative in the U.S. and U.K. Not surprisingly, U.S. and U.K. stocks have been outperforming this year. In addition, the dollar and sterling are cheap, while the euro and yen are expensive.
Our Global Investment Strategy service does not expect these basic conditions to change much going forward, even though the ECB may be dragged into more easing and the BoJ could embark on a program of half-hearted currency market intervention. The U.S. and U.K. will continue to have easier monetary conditions than the euro zone and Japan.
Bottom line: Continue to prefer U.S. and U.K. equities over euro area and Japanese counterparts.