The BREXIT vote rocked stock markets globally. There was only a large drop for two days, however, before stocks reversed course and began rallying. A month later stock markets in Europe and the UK are still suffering from BREXIT fallout. The same is not generally true in Asia, though, and South American markets are still maintaining the superior relative strength they've shown throughout much of 2016. U.S. stocks have benefited from BREXIT with the S&P 500 and the Dow Industrials reaching all-time highs. Nevertheless, many stock markets globally are outperforming the U.S. indices post BREXIT.
The epicenter of damage from BREXIT is almost exclusively in Europe. The week prior to the vote most markets were down between 5% and 10% compared to where they were in late May. The S&P 500 was down about 1%. The day of the vote, the S&P 500 was flat as was Germany. Many other European stock markets and the UK were down one percent or less. Early the next week, the S&P 500 (NYSEARCA:SPY) was down 5% and European stocks and the UK (NYSEARCA:EWU) were down around 12% to 18% from where they had been a month earlier. Italy (NYSEARCA:EWI) and Spain (NYSEARCA:EWP) had the biggest selloffs. UK stocks were down 15% and German stocks had the smallest drop. A month later, the S&P was up 4% compared to late May, German stocks down a little less than 5%, and British and French stocks (NYSEARCA:EWQ) down a little more than 5%. Spain was down almost 10% and Italy almost 11%.
The chart below shows the relative performance of major European markets from late May until late July versus the S&P 500. The black line is the S&P, the blue line German stocks, the bronze line British stocks, the orange line French stocks, the yellow line Spanish stocks and the dark red line Italian stocks. The bright red vertical line is the day of the BREXIT vote.
European Stocks Markets Pre and Post BREXIT
Asia, with the major exception of Japan, was not as negatively impacted post BREXIT (Russia has been included with Asia). Chinese stocks did especially well post BREXIT. Like European stocks, Asian stocks rallied the week before the vote, sold off until early the next week, and then rallied. Up until early June, Russian (NYSEARCA:RSX), Australian (NYSEARCA:EWA), and Japanese (NYSEARCA:EWJ) stocks were underperforming the SP 500. One month after BREXIT only Japanese stocks, down about 1%, were doing worse than the S&P. Chinese stocks (NYSEARCA:FXI) were up around 9%, Indian stocks (NYSEARCA:INP) about 6%, Australian stocks almost 5% and Russian stocks 4%. In the chart below, China is represented by the blue line, India the orange line, Australia the yellow line, Russia the dark red line, the S&P 500 by the black line, and Japan by the bronze line. The bright red vertical line is the day of the BREXIT vote.
Asian and Australian Stock Markets Pre and Post BREXIT
Stock markets in South America were the best performing markets post BREXIT. On the downside after the vote, they all did better than the S&P 500, as they did in the rally afterwards. Brazil (NYSEARCA:EWZ) was the star, up around 24% one month later. Peru (NYSEARCA:EPU) was up a little over 10%, Chile almost 8% and Columbia up over 4% (only a tinge better than the S&P 500). In the chart below, Brazil is the bronze line, Peru the blue line, Chile the dark red line, Columbia the orange line and the S&P 500 the black line. The bright red vertical line is the day of the BREXIT vote.
South American Stock Markets Pre and Post BREXIT
Investors should concentrate their portfolios on markets that are doing the best and ignore markets that are underperforming. In the post BREXIT environment, three of the strongest stock markets have been: Brazil , Peru and China . European stocks, including the UK, but not Russia, have all been weaker than the S&P 500 and should be avoided in the short term. U.S. stocks are doing OK, but there are better opportunities in Asia and South America. Investors should overweight their portfolios with stocks from these regions. A number of commodities are doing as well or better than U.S. stocks as well. More information about this can be found here.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.