ETF Expert: Foreign ETF Performance Not A Function of Current Jobs

Investing is rarely about what happened recently. It's more about… what people expect to come down the pike.

Examples are plentiful in the ETF universe, particularly abroad. For instance, Spain is suffering through one of its worst recessions in modern history. Its quarterly GDP decline at an annual rate is -7.4% and its unemployment is at a staggering 18.7%.

Meanwhile, Spain's next-door neighbor, France, is hardly having an easy time of it; France's quarterly decline (annualized) was -4.8% and its unemployment is similar to current U.S. numbers at 9.3%.

If one had to guess, he/she might think that iShares MSCI France (EWQ) had been outperforming iShares MSCI Spain (EWP) over the previous 6 months. Yet that supposition would be wrong. EWP has jolted ahead by nearly 1500 basis points.

Spain versus france 6 months 2009 

Okay, so perhaps there's an anomaly in western Europe. What about Eastern Europe?

Quarterly economic results are less readily available for countries like Turkey; that said, the Economist estimates 2009 annual GDP for Turkey at -4.5%, Austria at -3.2%. Austria also reports a rather robust job number of 4.3% unemployment while Turkey is saddled with 15% unemployment. Surely, Austrian stocks would be faring better than the markets in Turkey, right?

As it turns out, over the last 6 months, the iShares MSCI Turkey Fund (TUR) is up 80% to iShares MSCI Austria's( EWO) 50%. That's a 3000 basis point advantage from a country with far more dire concerns in the present.

Turkey etf versus austria etf ewo 2009

Believe it or not, there are more instances where the current economic data don't seem to support what stock assets from that country are doing. Yet that's precisely where people make their biggest investing mistakes.

Essentially, stocks are leading indicators of where things are going. They may go higher before GDP excels in anticipation of the event. And they certainly tend to go higher long before unemployment, a well-known lagging indicator, ever gives an accurate "read" on the direction of company stock prices.

At the moment, of course, all benchmarks tend to be moving forward and setting 10-month or 52-week highs. So it's clear that there's an expectation that economic improvement should occur worldwide.

That said, many may believe that Spain's and Turkey's economic prospects going forward are improving faster than the prospects of the other countries mentioned. Indeed, country stock performance could be somewhat related to the FUTURE of a country or region's economy.

Here, then, are forecasts for economic output for various "places." If the forecasts themselves are correct, and if a relationship does exist between future economic output and current stock prices, one might choose to invest accordingly.

Country/Region GDP Forecast For 2010 — Economist Poll
China 7.6%
India 6.4%
Latin America 2.5%
United States 2.0%
Eastern Europe 1.5%
Japan 1.0%
Western Europe 0.5%

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "LIVE", via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site. 

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