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“Whatcha got ain’t nothin’ new. This country’s hard on people. You can’t stop what’s comin.’”

No Country For Old Men, 2007

Decoupling is a theme that is often raised by investors seeking to achieve stock portfolio diversification. The idea is that selected countries or regions have evolved to the point where they are self-sustaining and not directly exposed to an economic downturn in some other part of the world. While achieving a level of risk control through global diversification may be attained during periods of relative stability, it becomes significantly less so during times of crisis. And if we descend into another financial crisis in the coming months, it is likely that virtually no country’s stock market will be spared no matter how defensive or isolated it may be.

A look back at the performance of various markets around the world during the financial crisis in late 2008 and early 2009 is instructive. The following is the peak to trough performance of various global markets during that time.

AMERICAS

United States (SPY): -47%

Canada (EWC): -54%

Mexico (EWW): -59%

Brazil (EWZ): -59%

Chile (ECH): -51%

EUROZONE

Germany (EWG): -54%

France (EWQ): -51%

Italy (EWI): -60%

Netherlands (EWN): -57%

Spain (EWP): -57%

Austria (EWO): -64%

Belgium (EWK): -62%

EUROPE

United Kingdom (EWU): -53%

Switzerland (EWL): -44%

Sweden (EWD): -50%

Russia (RSX): -74%

MIDDLE EAST AND AFRICA

Turkey (TUR): -66%

Israel (EIS): -40%

South Africa (EZA): -53%

ASIA

China (FXI): -52%

Japan (EWJ): -39%

Hong Kong (EWH): -48%

Taiwan (EWT): -46%

Malaysia (EWM): -34%

Singapore (EWS): -53%

South Korea (EWY): -57%

Australia (EWA): -54%

India (EPI): -54%

Thailand (THD): -51%

No matter how you slice it, there was no country to hide for scared investors during the depths of the financial crisis. Every country that was reasonably investable across a diverse range of regions and countries were all down sharply. And despite the fact that the United States was at the epicenter of the crisis in 2008, it was one of the best relative performers. Thus, there was simply no place for stock investors to hide in global equity markets.

But what about today? The global stock market environment has certainly been turbulent since late July once concerns about the European sovereign debt crisis moved to the forefront of investor minds. And many new country specific exchange traded funds have been introduced in the three years since.

The following is the peak to trough performance of various markets around the world since July 2011.

AMERICAS

United States (SPY): -21%

Canada (EWC): -28%

Mexico (EWW): -27%

Brazil (EWZ): -34%

Chile (ECH): -37%

Argentina (ARGT): -41%

Colombia (GXG): -23%

Peru (EPU): -25%

EUROZONE

Germany (EWG): -38%

France (EWQ): -36%

Italy (EWI): -39%

Netherlands (EWN): -30%

Spain (EWP): -32%

Austria (EWO): -44%

Belgium (EWK): -29%

Ireland (EIRL): -27%

EUROPE

United Kingdom (EWU): -23%

Switzerland (EWL): -23%

Sweden (EWD): -34%

Russia (RSX): -42%

Norway (NORW): -35%

Poland (EPOL): -41%

MIDDLE EAST AND AFRICA

Turkey (TUR): -33%

Israel (EIS): -32%

South Africa (EZA): -25%

Egypt (EGPT): -38%

ASIA

China (FXI): -34%

Japan (EWJ): -19%

Hong Kong (EWH): -30%

Taiwan (EWT): -26%

Malaysia (EWM): -23%

Singapore (EWS): -30%

South Korea (EWY): -34%

Australia (EWA): -28%

India (EPI): -33%

Thailand (THD): -32%

Indonesia (IDX): -34%

New Zealand (ENZL): -24%

Vietnam (VNM): -26%

Once again, no country has been spared the damage of the recent stock market pullback over the last several months. And while the U.S. stock market has provided for an uncomfortable ride along the way, it has been measurably worse in virtually all other investable markets around the world. The only market that has incrementally outperformed the U.S. on a peak to trough basis since July is Japan.

Therefore, stock investors looking abroad for portfolio protection during times of crisis are bound to find disappointment in the end. So instead of looking outside the United States for protection, investors would be better served to look within. And instead of overly emphasizing stocks, investors would also benefit from viewing stocks as just one of many total return asset class categories.

Stocks certainly have their place in the overall portfolio construct, and emphasizing higher quality names such as PepsiCo (PEP), HJ Heinz (HNZ) and Clorox (CLX) in the current volatile environment can help control risk. By truly diversifying a portfolio beyond stocks into categories such as U.S. Treasuries (IEF, TLT), TIPS (TIP), Agency MBS (MBB), precious metals such as gold (GLD, IAU, PHYS) and silver (SLV), and utilities preferred stocks (XCJ, DRU, SCU, ELA), stock investors may ultimately find the stable returns and portfolio protection they are seeking.

This post is for information purposes only. There are risks involved with investing including loss of principal. Gerring Wealth Management (GWM) makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by GWM. There is no guarantee that the goals of the strategies discussed by GWM will be met.

Source: No Country For Scared Investors