Schwab's Kleintop: Avoiding Japan, Likes Europe Banks (Audio)

a gain of seven tenths of one percent. The SMP at two thousand ninety naz stack up thirty one points, a gain of seven tenths of one percent. Down industrials up one d forty nine points, a gain of eight tenths of one percent. The tenure down to thirty seconds, the old one point eight six percent, Gold down four sixty the ounce to twelve twenty four A dropped there of four tenths of one percent. Crude up one oh seven of arrow forty nine sixty eight, a gain there

of two point two percent. I'm Charlie Pallett, and that's a Bloomberg Business Flash. Charlie Pella, thank you so very much. Now it's time for the e t F Report brought to you by van Eck Vectors e t S expect more from your muni's target taxes and income by maturity and credit quality, all with low cost et s. Visit vanek dot com slash Muni Vanek access the opportunities, and for today's e t F report, we go to our own Catherine Cowdery. Investors are taking their fascination with low

volatility stocks to new heights. That's the word from Joseph Cieli of Bloomberg News. He says that Power Shares SMP five funded Low Volatility Fund and the I Shares Edge m SCI Minimum Volatility USA e t F saw their combined assets reached twenty billion dollars this month for the first time, and they've added seven billion dollars so far. They see here. The reason, Sioli says, some of it has to do with uncertainty about when the Federal Reserve

is going to raise interest rates again. So there's a lot of debate as to whether a rate hike could be a positive or negative for the stock market. So the safest thing to do is just to buy an instrument that that's insulated from from either of them and kind of just benefits from arrangement market. You also have concerns over global growth in China, which has really been one of the major themes in two thousand and sixteens

so far. The Brexit vote coming up in in the U k IS is also adding a little to the turmoil. And then just overall just a dispatch of economic data that can really swing the market one way or the other on a given day. That's your Bloomberg ETF report. I'm Catherine Cowdery. This is taking stock with pin Box and Kathleen Mays on Bloomberg Radio. Economic growth in the United States versus economic growth in the Eurozone. Eurozone GDP growth surprised to the upside in the first quarter, up

six tenths of a percent. Go Ahead annualized that in order to compare it to the United States where two point four quarterly growth. Let's find out more from Jeff klein Top. He is the chief Global investment strategist for Charles Schwab and Come Company. He joins us from Boston, of course, home to Bloomberg twelve hundred and he can be followed on Twitter at Jeffrey Klinop. Jeff, thanks very much for being with us and start us off by

giving us some details about economic performance in Europe. You bet, it's great to be with you. So here's the thing about Europe. Not a whole lot was expected for Q one, but we did see quite a rebound and lately we've actually just gotten the flash p M I numbers um and and it looks pretty good. In fact, Germany just saw a nice rebound, and we also got the i FO data, which is a big business survey over there in Germany's had also showed a nice upticks three months

in a row. Now for the manufacturing economy in Germany coming back, it's good to see. And so you've got a broad based of support from consumer spending which is strengthening manufacturing sector coming back. This is important. Remember just a couple of years ago, gosh, less than a couple of years ago, Europe was in recession. So it's still earlier in a teconomic cycle, and we're seeing that vibrancy

in better economic growth. But Jeff, there isn't a lot of this confined to Germany, in Europe's biggest economy, the economy that is benefiting so much from being part of the euro Area, very very export dependent. Much of the rest of Europe is not doing anywhere near this. Well, that's true. A lot of particularly southern Europe has has had a much tougher time than northern Europe has. UM. But you know, we are see broadly speaking, uh, the

economy continues to move in the right direction. I think you want to be careful when you're investing in Europe to make sure you understand what you're getting exposure to. UM. You know, we like the financials within Europe, and that's naturally gonna orient you more towards the northern part of Europe, countries like Germany and France as opposed to the south. And and so you know, I think as you invest, you think about healthcare also another area in Europe that's attractive.

That's uh, primarily northern Europe where you're going to find those health care companies, and that's where we're sending to focus on finding value. Hey, Jeff, is Spain by any chance and exception. I mean there's some investment opportunity you don't want to buy when it's already high. You know that.

That's an interesting point. So Spain, Spain has shown some signs of turning the corner there have been labor reform recently implemented there and some increasing momentum in that economy, but the unemployment rate is still very high, so that economy has got a long way to go and is vulnerable to some risks. So while Spain looks attractive and many Spanish stocks look attractive from a valuation perspective, they do come with a lot of volatility, given the vulnerability

to geopolitical shock or other economic shocks. We know, our colleague our stocks and are Dave Wilson. We were talking about the Euro Area Minister's meeting and you know, trying to help Grease stay on its feed and get through its debt payments and all that, but basically point out that the Greek stock market has been quite a performer. What do you think about that? Yeah, well, you know, some of that uh you know, rebound, a lot of

it just reflecting just the risk. I mean it's interesting to see, you know, just make a parallel with with Brazil this year, right, I mean, you know, the economy took off on prospects for for change and reform, and ultimately it's a long road to recovery, both for Brazil

and for Greece. And investors may be disappointed. Certainly, Greece's European country, but it's also an emerging market, and we're a little bit more cautious on the emerging markets, and Gosh, i'd include Greece and that given the very long road to recovery there. Jeff the Nikkai in Japan down nearly four percent so far this year. Invest in Japan or wait for perhaps another recession or another attempt to forestall a recession. Yeah, you know, Japan does not look very

attractive to us. Japan's got a number of issues, including the uh, you know, deteriorating manufacturing sector. Unlike what we see going on in Europe where things are improving. Japan very dependent on China. China big customer of Japanese products in China seems to be slowing here once again as they maybe moderate some of the stimulus that they injected earlier this year, and that's going to be a drag on Japan, as is that stronger yen, which seems to

be a real point of weakness for it. For that economy so much more focused from a developed market standpoint on Europe rather than Japan. Also, Jeff are was one of the reasons you're focusing on the rest of the world is that you see fewer opportunities now in the United States in the stock market. Well, you know, the US has UH is a little bit longer in in the twoth I mean, the economic cycle has gone on

quite a bit. There's less momentum UH and and I'd say there's less room to grow profit margins in the US, whereas in Europe, for example, profit marches are still relatively low, a little bit below average. And so I think profit growth has a lot more momentum to it as we look to what's going on in Europe than than perhaps the US does. What about the Latin America, Jeff, are

we waiting waiting and seeing what happens in Brazil? I mean, is that is that just the sort of a political issue at this point for investors, It seems to be Brazil very tied to to put all of Latin America very tied to both politics and commodity prices and pim you know, noticing recently, I'm notwithstanding oils move today, raw industrial commodity prices have started to roll over a little bit, and you know, talking about things we used to make

other things from rubber and comport at ten and lead. They seem to be stabilizing after a pretty strong run up in prior months. That's bad news for commodity exporting nations, including those in Latin America. It's gonna be a tough ride for them. Okay, you're looking at stocks as you look globally. Are there any sovereign bond markets you like? Are there any corporate bonds or corporate bond markets in Europe, Asia,

Latin America you like? We remained um focused on on the US for fixed income, not finding a lot of value overseas, still believing that dollar might be heading a little bit higher over the remainder of this year, say flat to higher, and that's a drag on your returns from international fixed income investing. So it isn't necessarily a credit view as much as it is a view on currency. Jeff Fer. Everyone wants to know when do you think

they're going to raise interest rates? You know, we we've been saying that the Fed is likely to raise rates uh in the second half of this year. You know, we had thought maybe September. Perhaps that's a little bit earlier now, but the doors open to one, maybe even two rate hikes later this year. And that's uh. That's encouraging is that the FED finally feels the global economy is strong enough to do that. But it's negative news for the emerging markets. You know, earlier this year, the

emerging markets were leading, leaving things higher. In fact, through the end of April they were up six or seven percent on the year. They've pulled all the way back here in the month of May as prospects for FED rate hikes have picked up. And that's because emerging market performance is so dollar dependent. The revival in the dollar after a slide earlier this year has been toxic for emerging market assets and really helped them underperformed. That maybe

a recipe for the second half. Look for volatility and a lagging performance out of emerging markets. UH So, are you, then, um in the camp that thinks, uh a fedrate height could actually be the state destabilizing, especially overseas well. I think it could be. It could raise concerns and and and tighten financial conditions for some emerging market countries, but

I'm not worried about a crisis. I we don't have the same type of UH dollar denominated debt emerging markets that we saw in nineteen nine, seven or nine that led to the global financial crisis. Back then, gosh, Back then, South Korea had eight percent of its debt denominated in dollars. Now it's eight. So it's a problem, but not a crisis, all right, Jeff clientop, thank you for joining us an investment look around the world. Jeff is chief Global investment

Strategist at Charles Swab. He's up in Boston, home of Bloomberg twelve hundred. He likes European banks if it comes to fixed income. He's keeping his money, his client's money in the United States. I'm Kathleen Hayes along pim Fox. This is taking Stock on Bloomberg Radio.