Chart of the Week – International Markets vs. S&P 500

This week’s Chart of the Week comes from the most recent ‘Guide to the Markets’ put out by the wealth management folks at JP Morgan:

emerging_markets_vs_S&P_500How much longer can the trend last? Here’s some thoughts:

 

Since early 2012, US stock markets have left the rest of the world behind. Political and economic stability are certainly worth a premium, but when does it go too far?

Emerging markets are coming off their worst long term returns in a lifetime and it appears momentum is starting to shift:

 

Recently, international stocks have made a comeback. In the chart below, the pink link represents the “All Country World ex-US Index”, blue represents the S&P 500 and Green represents emerging markets index:

2017_performance_eemvsspyvsacwi

 

 

International stocks and emerging markets in particular have had a banner year so far in 2017. Leaving many to ask if the emerging market or international equity story still has room to run. I think the chart from JP Morgan shows that these trends can last for quite a while. After all, international equities have had nearly a decade of underperformance compared to US markets! Meb Faber did some interesting digging into historical data and found that the last time emerging markets had a performance as bad as they have the last few years, their next two-year returns were 96%!

 

International markets have a lot going for them: A weaker dollar and rising commodity prices are helping, valuations are lower and the higher dividend yields give investors a reason to hold on.

 

 

Looking at the last 20 years, it looks like international markets can have a long way to run.

 

Read More

JP Morgan’s “Guide to the Markets” is updated quarterly, and is a great read with some very useful information.

How can you invest in emerging market equities? Our most recent Fund Spotlight Series focuses on low cost emerging market ETFs

 

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