A Few Charts And a Few Thoughts

Emerging markets (EEM) are outperforming U.S. stocks this year by 12.3%. European stocks (VGK) are outperforming U.S. stocks by 8.3%. And despite the performance disparity in the first half of the year, the U.S. still owns the last decade. Over the last ten years, the S&P 500 has returned 95%. Emerging Markets are up 11% and European stocks have delivered zilch.

The chart below shows the last ten years for emerging markets; An 11% total return, a 60% drawdown, and a dozen false starts. It’s more than understandable that most investors have thrown in the towel on these stocks.


Coming into 2017, things weren’t looking pretty. The best thing you could have said is that all the bad news is priced in. And even then you would have been making an educated guess. It’s impossible to ever know for certain what is or isn’t priced into something. But one thing is clear, this chart wasn’t exactly a screaming buy.


But it appears that indeed the bad news was priced in. All the pessimism surrounding these underperforming stock markets drove prices down to levels where most of the risk was already reflected. Needless to say, we can only say this with the benefit of hindsight.


Investing across the pond has been brutal for U.S. investors. Below are the returns, of which there were none, for the last ten years.


Emerging marketsĀ didn’t look great coming into 2017, but at least prices were above an upward sloping 200-day moving average. Take a look at the chart below and you’ll see that it was hard to find anything constructive to say. Oh yea, Brexit wasn’t inspiring investor confidence either.


On the first day of 2017, the Euro fell to a 14-year low against the dollar. But then, without any warning, at least I didn’t get the memo, it stopped falling and started reverse falling and it’s now at the highest levels since May 2016. A strengthening Euro helps foreign investors who choose not to hedge their currency.


The last few years have been painful for those of us who have invested outside the United States. Not only has the rest of the world had lousy performance, but our own markets have been on an absolute tear. So it’s nice to have diversification finally pay off, even if it turns out to be short lived.