What Countries Are Hot, And What Should A Momentum Investor Buy Now?

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 |  Includes: EIS, EWC, EWP, EZA, IVV, SPY
by: Accuvest Global Advisors

Summary

Country selection is a viable way to approach global equity investing.

The momentum factor works across country markets as well as within countries.

Market performance across countries has diverged greatly in the last 12 months.

This is the second commentary in a series about the relative attractiveness of different country stock markets. In a previous whitepaper, we looked at using momentum as a factor when investing across countries, and found it to be effective in generating outperformance vs. the benchmark. The full text can be found here.

As investors who are biased towards factor tilts, we thought it would be interesting to look at the relative performance of the 32 countries in our universe based on 3 basic criteria: trailing 30-day return, trailing 90-day return and trailing 12 months minus the recent 30-day return. All returns are measured in local currency of the respective index.

The table below includes rankings of each country based on each individual factor, as well as a composite rank that is the average of the 3 factor ranks. In addition, just for the sake of completeness, we included the actual measure of trailing 90-day return so that readers could see how recent political events are affecting relative returns. This data is as of 3/9/14, and as such, reflects the most recent weakness in Emerging Markets.

90-Day Return

30-Day Rank

90-Day Rank

12 Months - 30 Day Rank

Composite Rank

ITALY

9.77%

5

2

1

1

ISRAEL

23.00%

2

1

9

2

USA

7.32%

8

4

6

3

FRANCE

6.00%

6

8

5

4

SWITZERLAND

6.97%

9

5

7

5

SPAIN

6.89%

13

6

2

5

SWEDEN

9.05%

15

3

11

7

NETHERLANDS

4.54%

20

11

3

8

UNITED KINGDOM

5.53%

18

10

8

9

GERMANY

6.50%

26

7

4

10

POLAND

(0.28%)

7

18

12

10

INDONESIA

5.69%

1

9

28

12

SOUTH AFRICA

0.33%

4

15

20

13

INDIA

3.95%

10

12

22

14

CANADA

1.69%

14

13

17

14

AUSTRALIA

(1.17%)

3

20

21

14

MALAYSIA

(1.27%)

12

21

13

17

NORWAY

(0.09%)

19

17

15

18

TAIWAN

0.82%

24

14

14

19

KOREA

(3.21%)

11

24

19

20

JAPAN

0.14%

30

16

10

21

HONG KONG

(0.74%)

22

19

18

22

AUSTRIA

(1.35%)

31

22

16

23

THAILAND

(9.66%)

17

28

26

24

SINGAPORE

(5.27%)

21

27

24

25

CHINA

(4.15%)

27

25

23

26

PERU

(3.07%)

28

23

29

27

MEXICO

(5.26%)

29

26

25

27

TURKEY

(23.85%)

16

32

32

27

BRAZIL

(17.25%)

23

30

30

30

CHILE

(13.88%)

25

29

31

31

RUSSIA

(22.34%)

32

31

27

32

Click to enlarge

Momentum Rankings as of 3.9.14. Source: Accuvest Global Advisors, MSCI.

Over the past 90 days, Israel is the best performing index, up 20.6%, and Turkey is the worst performing index, down -16.8%. That is a maximum/minimum range of 37.4%. Based on the composite rank, Italy is the hottest market in the world, followed by the US, South Africa, Israel, Canada and Spain. The worst performing markets are Turkey, Brazil, Mexico, Russia and Peru. Indonesia's profile is quite interesting, with very strong returns in the last 90 days, but terrible longer-term performance. Japan shows the exact opposite, with very strong longer-term performance, but very poor near-term returns.

Currently, momentum investors should be looking at single-country ETFs that invest in the US (NYSEARCA:SPY), (NYSEARCA:IVV), South Africa (NYSEARCA:EZA), Israel (NYSEARCA:EIS), Canada (NYSEARCA:EWC), and Spain (NYSEARCA:EWP). With the exception of South Africa and Israel, the rest of the countries on this list are relatively expensive. It seems like investors are now being forced to choose between buying countries that have good relative value and poor momentum, or countries with strong momentum that are have more expensive valuations. For the moment, the countries with strong momentum continue to outperform. How long that will last is anyone's guess.

Disclosure: I am long IVV, EIS, EWC, EZA, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: The opinions expressed in this report are those of the author. The materials and commentary are strictly informational and should be used for research use only. This bulletin is not intended to provide investing or other advice or guidance with respect to the matters addressed in the bulletin. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions that comply with matters addressed in this report. Charts and information used in this report are sourced from Accuvest Global Advisors. Past performance is not indicative of future results. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. Investment risks are borne solely by the investor and not by AGA.