March 6, 2006
A GLOBAL TOUR OF STOCKS
Foreign stocks remain hot in 2006. The S&P 500 is up 3.5% on a total return basis through March 3, and the small-cap Russell 2000 has climbed 8.7%. But those are no great feats in terms of finding comparable performance in equity markets elsewhere on the planet. The "catch" is that much of the stellar flights in returns this year continuing coming by way of emerging markets.
We say "catch" because emerging markets have been on a tear since 2003. This being the fourth consecutive year (so far) of potent performance, the question necessarily arises: How long can the good times last in emerging markets? There's no easy answer, if only because no one knows what the future holds. But at least we can study the past and digest whatever scraps of insight that task offers.
Nonetheless, there's a risk of drawing too many (and arguably any) conclusions from history. Indeed, more than a few bears have been waiting for REITs to correct after a multi-year run. A similar sense of dread hangs over some when it comes to surveying bonds. But each of those markets has continued to confound and confuse by refusing to do the decent thing for bear-minded investors and take a dive.
To be sure, every market rises and falls. The timing is the great mystery. Still, we can't help but consider the past. Maybe it offers context, maybe not. While you ponder such imponderables, here's some graphics to pass the time.
First up is a look at developed markets, measured in broad terms. (All charts below are drawn from data published by MSCI for 2006 price returns through March 3.) The Nordic countries of Europe are clearly in the lead in the developed world, with Norwegian stocks jumping by more than 15% so far this year in dollar terms. The laggard is the developed markets in the Far East, with New Zealand taking a dive in 2006.
The real action in global equity markets is again in the emerging markets. MSCI Emerging Markets Index is up more than 11% in dollar terms, posting a rise so far in 2006 that's twice as high relative to developed markets overall, as tracked by MSCI EAFE. Even the relatively lagging regions of emerging markets are in the black. So far in 2006, it's been virtually impossible to lose money, a precedent that no doubt will prove easy to break at some point down the road and cause more than a few investors to draw the wrong conclusion in the here and now.
The top-performing emerging market this year is Venezuela, which has soared more than 39% in dollar terms, proving that President Chavez's anti-Bush rhetoric hasn't had much of a price when measured in local stock prices.
Posted by jp at March 6, 2006 9:56 AM
It's not Chavez we should be worried about, it's Harry Belafonte.
Latin American and Nordic stocks were the winners last year, but it would be interesting to see what percentage of that came entirely from oil. Venezuela and Norway are dependent on it for a disproportionate amount of their GDP. I think that, unfortuntely, a lot people may start pouring their money into these sectors based on last year's killer returns, not realizing that they're basically making a bet on our favorite volatile commodity.
Posted by: Phil at March 7, 2006 7:26 PM