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In this article, I wanted to look at how various country's stock markets have performed over key time frames. I think this exercise will be useful to find out how investors are voting with their money.

I've identified 5 time frames:

Time frame A: March 9, 2009-Today (entire Cyclical Bull Market)

Time frame B: October 4, 2011-Today (current leg up)

Time frame C: December 19, 2011-Today (recent rally)

Time frame D: February 3, 2012 - Today (high for many world indexes)

Time frame E: May 1, 2012 - Today (potential "climax" sell off)

Country A B C D E
USA [S&P500] 98% 23% 9% (2%) (7%)
Brazil [BVSP] 59% 15% 2% (13%) (10%)
China [SSEC] 14.8% 2% 8% 1% (2%)
Germany [DAX] 76% 24% 12% (6%) (8%)
Japan [NIKK] 23% 3% 4% (2%) (9%)
Spain [IBEX] (3%) (19%) (20%) (27%) (8%)
India [BSE] 100% 3% 7% (8%) (7%)
Australia [DJAU] 30% 6% (1%) (5%) (9%)
World Index [DJW] 77% 12% 5% (8%) (9%)

Comparable ETF:

USA: SPDR S&P 500 ETF (NYSEARCA:SPY)

Brazil: iShares MSCI Brazil Index (NYSEARCA:EWZ)

China: iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI)

Germany: iShares MSCI Germany Index Fund (NYSEARCA:EWG)

Japan: iShares MSCI Japan Index (NYSEARCA:EWJ)

Spain: iShares MSCI Spain Index (NYSEARCA:EWP)

India: PowerShares India Portfolio (NYSEARCA:PIN)

Australia: iShares MSCI Australia Index Fund (NYSEARCA:EWA)

World Index: Vanguard Total World Stock Idx Fd (NYSEARCA:VT)

Conclusion

The most important takeaway is how correlated, country stock performance remains. They tend to move in the same direction, however they differ in the intensity of the move. Over time, these differences add up to result in significant outperformance and underperformance.

Identifying pockets of strength and weakness in the markets is a rewarding exercise. Buying a stock in a country in an uptrend is a nice tailwind, while there is a headwind for buying a stock in a country with a declining index.

Specifically, the worst two indexes have been Spain and China. However, I think their situations are quite different. Spain, as reflected by the numerous headlines, is in the midst of a banking crisis.

Many question whether it will be able to survive in the EU. Spain faces many fundamental challenges such as a crippling high unemployment rate and rising yields on its sovereign bonds which exacerbates its fiscal situation. Some go as far to say that Spain is another Lehman.

China like Spain is close to 2009 levels, however I think it's a different case. From 2006-2008, the Shanghai Stock Exchange went up from 1,000 to a high of 6,000. This was clearly a case of irrational optimism, and like any bubble that bursts it takes years to repair the price damage and general distrust of the markets. I think we are in that healing or consolidation period for the Chinese markets.

Stocks in both markets have had very impressive bounces in the last couple of years that nimble traders could have taken advantage of. However, timing was of utmost importance and belated entries and exits were punished. On the other hand, timing errors were not as severely punished in the countries exhibiting outperformance.

At some time in the future, the trend will definitely change. However, I've learned that the trend can stay intact for much longer than most believe, often to the point where many believe it will never change. Many losses come from fighting the trend or anticipating a trend change.

The major trend changes tend to come from some sort of buying or selling exhaustion or fundamental change so we should be watching for these signs as well. Buying close to a trend change is rewarded handsomely, but I think most overestimate their ability to identify trend changes in real time. Stops are mandatory to manage risk in such situations.

I chose the specific time frames because everyone is comfortable with different holding periods and their interpretation of the trend is based on it. For some, the recent sell-off is a mere blip, while for shorter term traders, this has been a big deal. Based on one's time frame, they can assess where money has been flowing in and out.

In a future article, I will be doing the same study but with smaller countries and in another article, I will be doing a similar comparison based on valuation.

Thanks and good luck.

Source: S&P 500 Dominates Most World Indexes