Developed Market ETFs, Emerging Market ETFs: Questioning the Benefits of “First Into the Recession, First Out”
15 December 2008 at 10:30 am by Gary Gordon
The vast majority of analysts have emphasized that the U.S. entered its recession before other countries entered their respective doldrums. They also expressed a belief that the United States will come out of the painful contractions first and, by extension, the U.S. markets will be quicker to witness investment gains.
Like many ideas, this one sounds great in theory. Yet there are a number of reasons to challenge the "first-in-first-out" benefits.
For starters, the U.S. dollar is weakening once again. This is a direct result of our dramatic rate cutting, enormous bailout commitments and liquidity-increasing endeavors. We're literally printing gobs of money in Washington.
Not surprisingly, then, the U.S. dollar has entered a near-term downtrend. It's still up on the year. However, most of the credit crisis gains seem to stem from panic selling of other currencies a la the unwinding of "carry trades." (See the PowerShares DB US Dollar Bullish Fund below.)
More noticeably, a majority of the regional ETFs recently climbed above their short-term moving averages. This has occurred for the emerging markets as well as the developed markets with one noticeable exclusion… the U.S.
| Developed Markets and Emerging Markets Through 12/12/08 | ||||||
| 50-Day Moving Average | ||||||
| iShares China 25 (FXI) | 13.3 | |||||
| iShares MSCI Emerging Markets (EEM) | 3.8 | |||||
| iShares MSCI Japan (EWJ) | 3.7 | |||||
| iShares S&P Asia (AIA) | 3.1 | |||||
| iShares S&P Latin America (ILF) | 1.6 | |||||
| StreetTracks Dow Jones Euro Stoxx (FEZ) | 1.5 | |||||
| SPDR S&P Middle East and Africa (GAF) | 0.5 | |||||
| S&P 500 SPDR Trust (SPY) | -2.7 | |||||
| Vanguard U.S. Total Stock Market (VTI) | -3.3 | |||||
So while we may indeed be the first out of a recession, it's not currently being reflected in the investment markets. We were the first to go into our bear… and as it stands right now… we are last out on the near-term technical front.
Still, I am not one to dismiss the viability of the U.S. markets so quickly. In fact, the abysmal 40% losses for the S&P 500 in 2008 still represents better relative performance year-to-date than ALL of the above-mentioned exchange-traded funds, except for Japan. (The yen's super strength has kept the dollar-denominated iShares MSCI Japan Fund EWJ ahead of the pack.)
In other words, as hard as we fell, the rest of the world fell much harder. It may follow that… the harder they fell… the faster they've been climbing.
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