Halftime Report for Global Markets: Who’s Hot, Who’s Not

by Dan Burrows | June 27, 2013 11:54 am

The cleanest shirt in the laundry or the healthiest horse in the glue factory … take your pick of cliches to describe U.S. stocks, but they’re all pretty much true through the first half of 2013.

QuarterlyReviewOutlook185 Halftime Report for Global Markets: Who's Hot, Who's Not[1]Despite recent volatility and a selloff from the May highs, the U.S. market looks awfully good heading into halftime compared with the rest of the world.

True, Japan has offered better returns, but after peaking in late May, the Nikkei has gone into bear mode with a strong downward bias. Meanwhile, frontier markets such as Abu Dhabi, Dubai, Kuwait and Nigeria lead all comers with gains of anywhere from 30% to 45% — but, c’mon, you shouldn’t have anything but the tiniest allocation to these risky, rather illiquid frontier markets.

By comparison, the benchmark S&P 500 is up 12% on a price basis for the year-to-date through June 26, putting it on pace for an annualized gain of more than 24%.

Although it seems really, really unlikely that stocks will end 2013 with that sort of performance, international markets — from developed to emerging — would appear to have even worse prospects.

Past performance is, of course, no guarantee of future results, but emerging markets have been getting crushed so far this year, and it’s tough to say they’re cheap given the huge macro headwinds they face.

Slower growth and demand from China has clobbered commodity prices, while expectations that the Federal Reserve will taper its bond-buying program sparked a selloff in emerging-market bonds and currencies. That makes the BRIC markets of Brazil, Russia, India and China look more like falling knives than bargains.

The big developed markets don’t look so hot right now, either. Recession in Europe isn’t doing Germany, the U.K., Italy or France any favors, while those weak commodity prices (China, again) are hurting Canada and Australia.

See the chart below, data courtesy of S&P Capital IQ, for the year-to-date performance of the G7 markets, Australia and the BRICs:

global markets CHART Halftime Report for Global Markets: Who's Hot, Who's Not[2]

Those two lines on the top are Japan and the U.S. The Nikkei still is holding on to a 20% gain, but the euphoria over Abenomics sure faded fast.

At the bottom of the chart, Brazil is the biggest loser with a 25% drop on the year, hurt by plunging commodity prices, nationwide protests, crazy inflation and an interventionist government that keeps stepping on its own feet.

Russia is off 20%, hurt by being a petrostate in a world where oil prices aren’t going up, while China is down 14% thanks to credit-bubble fears, overcapacity and slowing growth.

With the exception of Italy’s 9% decline, European G7 markets are a sea of single-digit percent gains. Germany, France and the U.K. are up anywhere from 2% to 4.4%. That’s worthy of a “meh” — but better than down.

After Italy, commodity giant Canada is the only other G7 market to post a YTD loss; it’s off 3.9% in 2013. Australia, for its part, has held up reasonably well given its outsized exposure to China and commodities. The S&P/ASX 200 is actually positive heading into halftime, up 1.8% so far in 2013.

Despite all the recent Fed-induced nuttiness, it’s been an excellent first half for U.S. stocks. Even if the S&P 500 trades sideways for the rest of the year, we’ll still finish with double-digit-percentage returns.

Endnotes:
  1. [Image]: http://investorplace.com/hot-topics/quarterly-review-outlook/
  2. [Image]: http://investorplace.com/wp-content/uploads/2013/06/global-markets-CHART.jpg

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