How Stock Markets Globally Have Reacted To The U.S. Election

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Includes: ECH, EIDO, EPI, EPU, EWC, EWG, EWI, EWJ, EWQ, EWU, EWW, EWY, EWZ, FXA, FXI, GXG, RSX, SPY, THD
by: Daryl Montgomery

Summary

Stock markets on every continent have underperformed the S&P 500 since the U.S. presidential election.

Stocks in commodity-based economies have in general done the best.

Many stock markets in other countries are still outperforming the U.S. market.

Behavior of Mexican stocks indicates who the markets thought would win the election.

Stock markets around the world were strongly impacted by the U.S. presidential election on Tuesday, November 8th. The media, pundit, and polling consensus was that Hillary Clinton would be elected. This was even supported by the 5:00 PM exit polls on the day of the election, which had Clinton ahead. The situation was remarkably similar to the Brexit election in the UK in June. The shock from the unexpected success from Brexit, which all the "experts" said would fail, lasted only a few days in international markets, but lingered on for months in the UK. It still may not be over. The surprise Trump win for the presidency in the U.S. may have a bigger and longer-term effect on stocks.

An examination of stock markets around the globe in a 10-day period just before and after the election shows quite clearly that U.S. stocks outperformed other markets on every continent. The S&P 500 (NYSEARCA:SPY) was up around 4% (The Dow Industrials and Russell 2000 were up much more. For a detailed examination of U.S. stock market performance around election day, see here). Isolating stock performance of countries with commodity-based economies, shows most of them only barely underperformed the S&P 500, and were flat to slightly up. Stocks in other countries were down.

South American stock markets have been the top global performers all year. Most were down 5% to 10% after the election. The exception was Peru (NYSEARCA:EPU), which has been up as much as 75% this year, and was flat on the election news. Price changes in Mexican stocks provide an interesting clue as to how the markets thought the election was going. A Trump presidency is considered a strong negative for Mexico. Since Mexican stocks (NYSEARCA:EWW) rallied the day before and on Election Day (the market was up around 7%), there was obviously a belief that Hillary Clinton was winning the election. Several days later, the Mexican market was down almost 10%, as were stocks in Brazil (NYSEARCA:EWZ). Brazilian stocks, however, have been top performers globally (up as much as 90%) in 2016, while Mexican stocks were mostly flat in the months before the election. Chile (NYSEARCA:ECH) and Colombia (NYSEARCA:GXG) were down approximately 6% and 7% respectively. Both were still up about 15% on the year.

South and Central American Stocks Before and After Presidential Election

South America Mexico Post Election.gif
Black line is S&P 500, Red line Peru, Orange line Chile, Yellow line Colombia, Bronze line Mexico, Blue line Brazil

Asian stocks are well behind South America in year-to-date returns, but the continent is where the second best returns could be found before the election. The Indonesian (NYSEARCA:EIDO) and Thai markets (NYSEARCA:THD) were up as much as 30% as late as early October. The larger markets haven't done as well. Only Japan (NYSEARCA:EWJ) was underperforming the S&P 500 in 2016 before the election. After, the election, only Korea (NYSEARCA:EWY) offered the same returns for the year. Stocks there fell over 4% after November 8th. Japan was down only a little more than 1%. China (NYSEARCA:FXI) was down over 2%. India (NYSEARCA:EPI) was down over 7%.

Asian Stocks Before and After Presidential Election

Asia Post Election vs SP500 10-days.gif
Black line is S&P 500, Red line is Japan, Bronze line is China, Blue line is Korea, Orange line is India

Europe has been the stock market cold spot for the world in 2016. All the major markets there have underperformed the S&P 500 year to date. While high flying South American stocks could fall a lot and still have big returns, there was not a possibility in Europe, where poorly performing markets could only get worse. Understandably, drops in stock prices there were somewhat less. The UK (NYSEARCA:EWU), Germany (NYSEARCA:EWG), Italy (NYSEARCA:EWI), and France (NYSEARCA:EWQ) were down between 1% to 2% as a consequence of the U.S. presidential election. Spain was the biggest loser, dropping 6%. Italy has been the worse market all year, being down as much as 25%, while the S&P 500 has been up 8%.

European Stocks Before and After Presidential Election

EU Stocks vs SP500 Post Election.gif
Black line is S&P 500, Orange line UK, Bronze line Germany, Blue line France, Yellow line Italy, Red line Spain

Instead of looking at markets by region, they can be compared by their economic structure. A number of countries have strong commodity-based economies, and the change in their stock prices after the election can provide hints to how the commodity markets will benefit or be hurt based on a Trump presidency. The commodity markets seem to have had a major shift from bearish to bullish early in 2016. Stock markets in countries with relatively large commodity components did relatively well post election. Russia (NYSEARCA:RSX), the most commodity rich country on earth, was up almost as much as the S&P 500 post election. Canada (NYSEARCA:EWC) and Australia (NYSEARCA:FXA) were essentially unchanged. South Africa was down 10%, but year to date is doing as well as the S&P 500. The Russian stock market has been one of the stars in 2016, with the market up around 30%.

Commodity Country Stocks Before and After Election

Commodity Countries vs SP500 Post Election.gif
Black line is S&P 500, Bronze line Russia, Red line Australia, Orange line Canada, Blue line South Africa

For more about global market performance in 2016, see here, and here. For more about global stock market performance after Brexit, see here, and for one of the few predictions that Brexit would succeed at the polls, see here.

How an investor should react to post-election market performance depends on his or her time frame. If your horizon is a few days, watch for possible reversals. A market that has been strong all year, such as Brazil or Peru is bound to have a retracement as happened after the U.S. election. This doesn't mean their good relative performance is over. The evidence indicates that a country with significant commodity production will do best during the post Trump election era. Many emerging markets such as Brazil and Russia are in this category, but so are more developed countries like Australia and Canada. Markets to avoid include Mexico, South Africa, developed markets in Asia, and Europe in general.

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.