This has been an interesting year for global markets. It began with a strong showing from China, as its markets roared to all-time highs.
The euphoria did not last forever, and a series of disappointing growth metrics from the world’s second-largest economy sparked a massive selloff, becoming a bear market practically overnight.
We’re seeing that familiar hue — red — again in the stock market today, after China’s industrial profits fell 8.8% in August from the year before. In the U.S., pending home sales unexpectedly fell by 1.4% in August.
But while stocks might be in a correction, U.S. exchanges still haven’t reached that dreaded bear market territory, which occurs when prices fall 20% or more from their peaks.
But these seven countries aren’t quite so lucky, and the other three just might fall into bear territory sooner rather than later.
7 Countries in a Bear Market
Bear Market #1 — China: The Hang Seng Index is probably the most quoted index when we talk about the Chinese stock market. And it’s doing horrible this year. Investors had already begun to voice concerns about valuations, especially after China opened its markets up, allowing anyone to invest in Shanghai-listed shares, or “A-shares.” That program began in November 2014. By its peak in June 2015, the rush of foreign investors had caused the index to jump 150% higher. Now, for China, which is supposedly trying to shift to a more consumer-driven economy, it might suffer further as middle-class Chinese workers put less money in the stock market and more in the bank.
Hang Seng Index: -28% off of its 52-week highs
Shanghai Stock Exchange Composite Index: -41%
Bear Market #2 — Brazil: Brazil’s Ibovespa is the country’s flagship equity index, and it’s now in the middle of its longest losing streak since 2012. So much for Brazil and China being two emerging economies that would drive the world’s growth. A big part of Brazil’s suffering has originated with China, a major trade partner. Industrial weakness in China means less iron ore from companies like Vale (VALE) going overseas to China.
Ibovespa: -25%
Bear Market #3 — Russia: The RTS Index is composed of the 50 most liquid Russian stocks on the Moscow Exchange. As you might expect, falling oil prices, combined with long-lasting U.S. sanctions, haven’t exactly done wonders for the country’s economy. At the same time the country’s biggest natural resource lost half its value, its currency has also been slumping, and inflation was 7.8% in 2014 … oh, and the gross domestic product is expected to contract by 2.7% this year.
RTS Index: – 33%
Bear Market #4 — Singapore: One of the latest members of the bear market club is Singapore, which is just now swinging past the 20% loss required in a bear market. It turns out that an economy predicated on commodities prices rising indefinitely — mostly driven by Chinese demand — doesn’t just go up, up, up, in perpetuity. If you dare to seek exposure in Singapore, you’re free to buy into iShares MSCI Singapore Index Fund ETF (EWS), which is off nearly 24% in 2015.
FTSE Straits Times Index: -20%
Bear Market #5 — Portugal: Portugal has had its own problems for years now. Back when the global markets found out how completely and utterly fiscally irresponsible Greece had been, there were fears of contagion and talk that the PIIGS — Portugal, Italy, Ireland, Greece and Spain — would all go under. While none of the PIIGS have croaked yet, Portugal’s economy is by no means thriving, and its unemployment rate sits at 13.0%.
Portugal PSI 20 Index: -23%
Bear Market #6 — Spain: Spain is also just barely in bear market territory, with shares of the IBEX 35 index — composed of 35 of the most liquid stocks traded on the continuous market — down just over 20% since its recent peak. As far as workforce issues go, Spain has it far worse than Portugal, suffering through an absurd 22.7% unemployment rate.
IBEX 35: -21%
Bear Market #7 — Germany: That’s right, Germany — the crown jewel of the European Union. While Germany remains the lynchpin holding the EU together (unemployment is just 4.7% there), it’s still overly exposed to China. Despite the country’s relative strength when compared to other European peers, it’s still nothing to write home about: GDP growth was just 1.6% in 2014, and inflation came in at just 0.9%. If the U.S had growth and inflation stats like that, the Fed would keep interest rates in the gutter for another year! Alas, not every planet on earth is in a bear market, so let’s check out some of the more resilient markets in the world today.
Deutsche Boerse AG German Stock Index DAX: -24%
3 on the Verge of a Bear Market
Not Quite Bear Yet #1 — Japan: Japan’s flagship index, the Nikkei 225, is firmly in correction territory. But it hasn’t suffered nearly the pullbacks of its larger neighbor to the west. Thus, the bear market remains at bay. Of course, an aggressive series of economic policies by Prime Minister Shinzo Abe, dubbed “Abenomics” is responsible for giving markets some kind of safety net. And in a recent speech, Abe announced that the “three new arrows” of monetary policy, fiscal stimulus and structural reform, would help spark growth.
Nikkei 225: -19%
Not Quite Bear Yet #2 — Italy: Italy’s prospects are perhaps not as good as its modest stock market losses would indicate. Last year, GDP contracted by 0.4%, and inflation came in at just 0.2%. With an unemployment rate of 12.4% through April, there’s still a lot of work to be done, and political drama isn’t doing anything to help the matter.
FTSE Italia All-Share Index: -13%
Not Quite Bear Yet #3 — The U.K.: The wise people of the United Kingdom famously chose to neglect the euro in favor of the British pound. It was probably a sound decision — but it hasn’t entirely insulated the U.K. from global economic woes. Recently, the inclusion of troubled Swiss commodities group Glencore (GLEN) has been a horrible drag on the index; persistently low commodity prices and high debt have sent shares down 77% this year, and if it doesn’t find a way to scrape up more capital through further share issuance or asset sales, the company could be wiped out entirely.
FTSE 100: -17%
What to Do?
Oh yeah … There’s also another country that’s fended off a bear market rather successfully. That’d be the U.S., of course, which has only suffered an 11% slump from its recent peak.
It sounds bad — and odds are your portfolio’s feeling pretty bad right about now, too — but calm down and take a deep breath. The U.S. GDP grew at a 3.9% annualized clip in the second quarter. The unemployment rate of 5.1% is the lowest since April 2008.
And I’d say if Russia’s Vladimir Putin is willing to say on the CBS (CBS) show 60 Minutes that he admires America’s “creativity,” America is still the home of innovation. Don’t get scared away from the stock market just because times are volatile.
It’s tough to go wrong with low cost index-tracking funds like the Vanguard 500 Index Fund (VFINX). Willing to hold some foreign stocks in your index fund? You can do that too, with the Vanguard Total World Stock Index (VTWSX).
At the end of the day, there’s no sense in worrying about things you can’t control. In fact, a survey of 1,500 Americans over the age of 65 found that “worrying too much” was the number one lifetime regret.
So don’t sweat it. Just buy quality stocks or diversified, low-cost index funds. You’ll be thankful you did when the bears start hibernating.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
