So far in 2013, U.S. investors have enjoyed a steady climb in stocks, with the major market averages surging into record-high territory. There’s been a near absence of any sort of market volatility, with the CBOE Volatility Index (VIX) sliding to multi-year lows. Whatever the reasons behind the rally, it’s been gradually bringing back positive vibes on the part of market participants. In other parts of the world, however, the story is different: There’s been a greater degree of volatility in many international markets, and in general, international stocks have lagged behind the U.S.
Over in Europe, stock markets continue to gyrate based on the latest developments in their ongoing debt crisis and weak economic data. After experiencing a big rally over the second half of last year, stocks cooled during the first part of this year in large part due to the surprising result of Italian elections and the botched bailout of Cyprus. After a sizeable rebound over the past couple of weeks, an ETF that tracks the MSCI Europe ex-U.K. Index (EZU, the red line on the chart) is now up a little more than 6% this year, compared to 15% for the S&P 500 (the blue line on the chart).
Emerging markets stocks have been surprisingly soft, considering how well U.S. stocks have been doing. Over the past few years, when risk is “on,” meaning risk assets are rallying, emerging markets have typically been big beneficiaries and tend to outperform. After being down by 8% through mid-April, emerging markets have also had a nice bump higher recently and are just about flat on the year (based on EEM, a large emerging market ETF; the green line on the chart).
The hottest market continues to be Japan. The Nikkei Index is now up by more than 37% this year (the purple line on the chart), as investors continue to respond favorably to aggressive stimulus measures.
We continue to believe that longer-term valuation opportunities have developed in some international markets. We came into the year thinking that it might be time to “go global,” and that the international outperformance experienced over the second half of last year had a good chance of continuing (especially if global economic growth began to improve). We’ve backed off that idea somewhat based on what’s occurred this year, but continue to keep an eye on these markets for signs that things are picking up again. In the near-term, it looks like the roller coaster ride will continue.
Copyright: 3quarks / 123RF Stock Photo