American shares are back on top for year-to-date performances for the main regional slices of global stock markets, based on a set of exchange-traded funds. The leadership switch knocked China’s equity market to second place at the close of trading in the U.S. on Wed., May 27.
The performance ledger still shows across-the-board losses for all the regional proxy funds, but the US market is now posting the smallest loss in 2020. After yesterday’s rally, SPDR S&P 500 (SPY) is off 5.1% for the year to date. The modest setback marks a strong recovery from the fund’s 30% loss for the year on Mar. 23, the low point for American shares in the coronavirus crisis.
Technology stocks are a key driver of the US rally. “Tech companies are thriving,” says Seema Shah, chief strategist at Principal Global Investors. “No physical contact and lockdowns mean that this is a crisis that almost works in technology’s favor.”
Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno
Meanwhile, China’s stock market has stumbled in recent days, based on iShares MSCI China (MCHI). After leading SPY on a year-to-date basis for the past three months, MCHI’s performance this year slipped to second place at yesterday’s close via a -6.9% loss in 2020.
Geopolitical risk is a factor weighing on Chinese shares. In particular, China’s controversial move to impose a national security law in Hong Kong, one of the world’s main financial hubs, has brought international condemnation. China’s effort to reassert a higher degree of control over the city boosts the possibility that the US will end the favorable economic and trade relationship status with the city.
On another front, it doesn’t help that China-India tensions are rising at a shared Himalayan border. The Guardian reports:
Thousands of Chinese People’s Liberation Army (PLA) troops are reported to have moved into sensitive areas along the eastern Ladakh border, setting up tents and stationing vehicles and heavy machinery in what India considers to be its territory.
In response, the Indian army has moved several battalions from an infantry division usually based in the Ladakh city of Leh to “operational alert areas” along the border, and reinforcement troops have been brought in.
Even with the latest weakness in MCHI, the fund’s year-to-date results still compare favorably to the rest of the field. The deepest loss for our regional set of proxy ETFs continues to be in South American markets. The iShares Latin America 40 (ILF) is down a hefty 37.9% so far in 2020.
The benchmark for global equities, by contrast, is off by a relatively modest 9.9% year to date.
Profiling all the ETFs listed above through a momentum lens still shows a deeply bearish trend overall, although short-term momentum is reflecting a bit of a bounce these days for the aggregate set of funds. The profile in the chart below is based on two sets of moving averages. The first measure compares the 10-day average with its 100-day counterpart — a proxy for short-term trending behavior (red line in chart below). A second set of moving averages (50 and 200 days) represent an intermediate measure of the trend (blue line). Using data through yesterday’s close shows that short-term momentum overall is rising, albeit just barely, for the first time since the coronavirus crisis derailed global equities.
How is recession risk evolving? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report