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Back to the Future

John Lim, 2:32 am ET

AS 2031 WINDS DOWN, it’s time to look back at the major investment stories and themes that characterized the year and to look ahead to 2032.

Stocks had another banner year in 2031. Emerging markets led the way yet again, with the MSCI Emerging Markets index soaring 31%. This is the fourth year in a row that emerging markets were the top performer. Since 2022, emerging markets have returned 25% a year for more than a seven-fold gain.

Brett Trendy, director of global equity strategies at Milkem Stanley, expects more of the same: “Emerging markets have truly emerged. Favorable demographics, clean sovereign balance sheets and higher GDP growth are all tailwinds that will power emerging markets higher. Stellar returns over the past several years have proven that emerging markets stocks are far less risky than previously thought. Count me a bull.”

Stocks in Europe, Japan and Australia also had a strong year. The MSCI Europe, Australasia and Far East (EAFE) index rose 28% in 2031. International developed market stocks have, as a group, trounced the U.S. over the past decade, with the MSCI EAFE index rising 22% a year since 2022, while U.S. stocks have gone nowhere.

“International stocks are really where the action is,” says Elaine Late, a financial advisor with Global Macro Strategy Partners. “Last year, we moved our clients out of U.S. stocks and into international and emerging markets for the first time in years. Their patience with U.S. markets has grown thin, as has our own.”

After a lost decade for U.S. stocks, a growing stampede of investors have abandoned U.S. shares. Outflows from U.S. stock funds reached record levels in 2031, with average outflows of $20 billion per month, according to Chicago investment researchers Morningstar.

But one corner of the U.S. market has seen impressive inflows recently: U.S. large-cap value shares. No wonder. Funds specializing in U.S. value have outpaced their growth peers by huge margins over the past 10 years, to the tune of 7.8 percentage points per year.

But the really big news in the world of value investing was that Katie Forest, a onetime growth-stock wunderkind, opened a new investment shop geared toward value investing. Her major holdings? Wells Fargo, Berkshire Hathaway and TotalEnergies. When asked to explain, she gushed enthusiastically, “It all boils down to a four-letter word: moat. These companies have it in spades. They simply cannot be disrupted.”

The other big story of 2031 was the buyout of struggling online commerce firm Amazon.com by the global behemoth Alibaba. The price tag was a cool $800 billion in an all-stock offer. Investors responded by pushing Alibaba stock to new highs, closing the year at $1,022 a share.

On the final trading day of 2031, the S&P 500 finished slightly higher at 4,625 and the Nasdaq closed down at 12,332. The 10-year Treasury note ended the year yielding 5.6%. Gold was unchanged at $2,932 an ounce.

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Nagaraj Arakere
Nagaraj Arakere
4 months ago

Very enjoyable. I like your crystal ball! I have been a longtime investor in Berkshire Hathaway and a significant portion of my retirement assets are in it. Happy to see Berkshire alive and well in 2031.

Bob Wilmes
Bob Wilmes
4 months ago

I think the emerging market tech stocks like Taiwan Semiconductor are the key for future out performance. Interestingly, Taiwan Semi is building their first $12 billion factory in the U.S. on the north end of Phoenix which will be completed by 2024.

https://www.bizjournals.com/phoenix/news/2021/09/13/tsmc-hires-head-state-government-relations.html

Rick Connor
Rick Connor
4 months ago

Thanks John. I really enjoyed this, and now know how to invest for the next decade. Happy New Year.

johntlim
johntlim
4 months ago
Reply to  Rick Connor

Thank you, Rick. It was a lot of fun writing it!
Happy New Year. Stay well.

evan rayers
evan rayers
4 months ago

Absolutely intuitive JLim.
Charlie Mungers already betting* on your 2nd to last paragraphs insights today! https://markets.businessinsider.com/news/stocks/charlie-munger-daily-journal-portfolio-gain-stocks-banks-alibaba-byd-2021-12
Good luck & Best wishes…..

johntlim
johntlim
4 months ago
Reply to  evan rayers

Thanks, Evan.
Best wishes and happy new year!

Rick Thompson
Rick Thompson
4 months ago

Brilliant!

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