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January 2, 2013

The global economy faces further challenges in 2013, but solid fundamentals make some stocks appear attractive.

The European debt crisis, the slowdown in China, and other challenges weighed on stocks early in 2012 and may continue to keep markets volatile in coming months. However, corporate profits have generally held up well despite the troubled economic environment, and valuations (stock prices relative to earnings) remain appealing in many markets.

The managers of T. Rowe Price's international equity funds recently offered their outlooks in shareholder reports covering the 12 months ended October 31, 2012.

David Eiswert
David Eiswert, Global Stock Fund

While we expect global growth to be modest over the intermediate term, we are optimistic that the path forward will be less rocky. Despite a low-growth environment, we see numerous opportunities among various companies. Outstanding growth companies with healthy balance sheets are plentiful, and many have been overlooked by investors due to widespread risk aversion.

Bob Smith

If extreme events can be avoided, stocks should move higher as many companies are performing well, continue to report solid revenues and earnings, and have fundamentally sound balance sheets. In our view, stocks are currently priced at reasonable, if not cheap, valuations.

Jonathan Matthews

Generally, we remain mindful that uncertainty creates opportunity for value-minded investors with longer-term time horizons. Stocks in many sectors and regions are trading at what we believe are very attractive valuations…we are confident that we are finding companies that will eventually see better earnings and revenues, even if their host economies remain lackluster.

Some slower-growing "value" stocks may offer opportunities for contrarian investors.

Ray Mills

The muted economic environment is certainly challenging, but we continue to find companies doing a good job of controlling costs and growing profits.

Dean Tenerelli
Dean Tenerelli, European Stock Fund

…We believe the Continent has not yet hit the equivalent of an economic bottom. Austerity measures are encouragingly lowering debt-to-GDP rates—but at the cost of growth…On the bright side—and even after the recent gains in equity markets—valuations in European companies remain at 25-year lows and appear attractive. Many companies have strong fundamentals, with healthy balance sheets, low inventory levels, and growth opportunities outside their home markets.

Europe remains the weak leg of the global economy, but T. Rowe Price's London-based managers believe investor pessimism has left some companies with attractive valuations.

Leigh Innes

Accommodative monetary policies in key global economies have provided a near-term tailwind for emerging markets. However, the repercussions of fiscal austerity in the eurozone, along with continued volatility in commodity prices, remain concerning and are likely to keep markets volatile.

Campbell Gunn
Campbell Gunn, Japan Fund

Japan has faced a multitude of headwinds in recent years but has continued to demonstrate remarkable resilience. However, a sustained recovery will require a reversal in the trend of U.S. dollar weakness, which in turn is mostly a factor of relative central bank policy—a dynamic not entirely in Japan's own hands.

Japanese stocks lagged over the past year, hampered in part by the weakening yen, which weighed on returns for U.S. investors.

Gonzalo Pangaro
Gonzalo Pángaro, Emerging Markets Stock Fund

Across the emerging universe, disposable incomes and living standards are rising, the middle class is expanding, and consumer-driven industries are growing. We believe these trends will drive strong and sustainable growth for many years, even if the global growth outlook stays uncertain in the near term.

Emerging markets are generally in better shape than their developed counterparts.

Jose Costa Buck
José Costa Buck, Latin America Fund

Despite the past year's declines, we remain optimistic about Latin America's long-term growth outlook. In every country across the region, disposable incomes and consumption are growing strongly, and the middle class continues to expand in size and wealth. We believe these trends will drive strong and sustainable growth over time, particularly for industries driven by domestic demand.

Latin American markets have felt the impact of falling commodities exports, but growing domestic demand creates long-term opportunities.

Anh Lu

We believe that economic growth across Asia will stabilize in 2013, and earnings expectations have been reset at more reasonable levels. However, we anticipate that financial markets will remain somewhat volatile in the near term and that events in Europe, the pace of the U.S. recovery, and the extent of China's slowdown will continue to impact investor demand for Asian stocks.

A slowdown in China's remarkable growth has weighed on Asian markets, but T. Rowe Price's Hong Kong-based managers are hopeful that the regional economy will stabilize in 2013.

Susanta Mazumdar
Susanta Mazumdar, Global Infrastructure Fund

In this uncertain environment, we believe investors are looking for ways to access global growth opportunities with less volatility, looking for stocks that combine steady and sustainable dividend growth with moderate appreciation potential—stocks that form the core of our investment approach.

Rapid growth in emerging markets is driving investment in infrastructure, which may benefit a range of companies.

International investments are subject to market risk, as well as risks associated with unfavorable currency exchange rates and political or economic uncertainty abroad. Funds with a relatively limited geographic orientation and exposure to emerging markets have an increased risk level.

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