Discover more from AlphaCharts Blog
Market review 22.12.18
Non-US stocks, with a spotlight on emerging markets
Last week we looked at charts for global indices: The German DAX recovered major support, emerging markets held support, while India’s Nifty 50 broke out to new highs.
I want to focus only on foreign stocks today.
The US Dollar Index is up almost 10% year-to-date. At one point in Sept, it was up 18%. You would think this Dollar strength combined with an equity bear market would have crushed foreign equity ETFs priced in USD, right?
Rather, the SPY:VEU ratio broke down:
I want to emphasize this point in further detail.
The table below shows the relative YTD performance of various country equities vs. the S&P 500. Noticed how significantly this relative equity performance has deviated from the corresponding currency performance.
Imagine you didn’t believe in relative strength and just read the news. The state of the world in your mind would be something like this:
Europe faced an energy crisis after Russia invaded Ukraine. It even had to reduce industrial output to ration their energy.
China was in a strict Covid lockdown, with citizens under surveillance.
Japan faces an aging population and labor shortages. Growth is so weak that the BoJ refused to hike interest rates this year. In fact, it’s the only country that’s still maintaining negative rates.
Meanwhile, this year's aggressive rate hikes were supposed to cripple Canada, Australia, and China due to their giant housing bubbles / consumer debt levels.
I like to take note when the price action is the opposite of what is supposed to happen.
Not only did foreign equities hold/recover major price support, both the Euro and GBP recovered major support. This could boost European equities:
FWIW, the chart below shows Forward P/E ratios for the US (in red) and rest of the world (in blue). US and Foreign stocks traded at roughly the same valuations throughout the 2000’s. In the 2010’s, US valuations gained steadily relative to foreign – the gap got quite significant last year, but it has been narrowing over the past year.
In the rest of this post, I’ll focus on…
We looked at relative strength above more broadly, but it’s especially interesting when it comes to emerging markets:
The strongest ETF this year is Turkey (TUR), which is up +95% YTD. This is significantly higher than the runner-up, which is the energy sector (XLE) at +57%.
The countries closest to their 52-week highs are: India (NIFTY) and Turkey (TUR)
The strongest ETFs in recent months are China-related (KWEB, PGJ)
The relative strength in China showed up at an interesting time. It happened right when the MSCI Emerging Markets Index vs. S&P 500 ratio hit multi-decade support:
Let’s look at VWO (Vanguard Emerging Markets ETF) on multiple timeframes.
VWO Quarterly is lifting off a 15-year support level. It’s up 8% so far this quarter.
VWO Weekly pulled back and is now sitting on a 6-month support level:
Emerging markets have also helped serve as a timing indicator for the broad stock market. The chart below shows that at each major S&P 500 peak in recent years, EEM failed to make a new high:
Perhaps a more lasting equity rally occurs when the S&P 500 makes a new 52-week low but EEM does not. Just food for thought.
US stocks have dominated for the past 14 years, and they continue to be the focus for most investors and traders today. But in today’s post, we looked at how foreign stocks are holding/recovering major support levels and showing relative strength despite facing currency and news headwinds.
I hope to have provided enough data to have you as interested in non-US stocks (particularly emerging markets) as I am. I’ll leave you with these tweets to reflect on:
Next Sunday is Christmas Day, so I’ll see you guys in the New Year.
Have a Merry Christmas, everyone! 🎄
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.