Global Market Performance: Nowhere to Hide

White knuckles and shaky knees abound as the bear’s growl grows louder.

While on the road in Switzerland (where even the gnomes are gloomy), I have put together a table of global stock markets’ performance – over various measurement periods and in both local currency and U.S. dollar terms. The numbers speak for themselves and can best be summarized in a single sentence: “Nowhere to hide.” The Wall Street “leash effect” remained paramount, and decoupling nothing more than a theoretical myth.

The terrible performance during June, with especially the previously high-flying Chinese and Indian markets bearing the brunt of the selling pressure, was well-covered in the financial media.

Notwithstanding the poor showing in June, the second quarter was not all that bad as shown by the fairly flat performance of both the MSCI World Index ( 2.5%) and the MSCI Emerging Markets Index (-1.6%). Some indices such as the Nasdaq Composite Index (+0.6%) and the Russell 2000 Index (+2.2%) managed positive returns, but it was the Russian Trading System (+12.9%) the Brazilian Bovespa Index (+6.6%) and the Japanese Nikkei 225 Average (+7.6) that showed the rest a clean pair of heels.

The year-to-date performances (i.e. first six months of 2008) were all negative by double digits, with the exception of the Russell 2000 Index (-8.9%). But the really interesting figures were those since the respective bourses’ bull market highs. These numbers show the vast majority of stock markets to have entered bear markets, at least as far as the somewhat arbitrary “official” definition of a decline in excess of 20% is concerned.

As a result of the slide of the U.S. dollar over the different measurement periods, the performance of those stock markets where the local currency strengthened against the greenback (pretty much all markets) obviously look better once expressed in U.S. dollar terms (see second table).

A tradeable rally is probably not too far off, but the primary trend of most global stock markets remains down. Trying to squeeze out a few basis points from a bounce could turn out to be a high-risk strategy, particularly as long as the oil spike persists, causing sentiment and other overbought/oversold indicators to become even more oversold before a meaningful rally manifests itself.

Bill King (The King Report) said:

Stock market technicals are so horrid that one should not attempt to play for a rally even though stocks are extremely oversold. In a bear market an extremely oversold condition with horrid and degenerating fundamentals creates the conditions for an abnormal storm – hint, hint, hint. Numerous pundits and analysts have been calling for a market bottom for weeks if not months due to sentiment readings. They don’t understand the environment now is far different than a couple years ago.

In short, this is a DANGEROUS market in which to try to pre-empt short-term movements. In the words of Doris Day: “The future’s not ours, to see, Que Sera, Sera.”

Comments

[SWRichmond]

Nice clear article which I happen to agree with. The bottom-callers (where is Dick Bove when we need him?) have been talking about the gloomy mood on the Street for months. In fact, the mood only recently shifted to genuine gloom. Until a few weeks ago, the bulk of investors believed that every drop was a buying opportnity. They believed this because that is what they were taught to believe by the Fed and its ever-inflationary policy. When the Fed always has your back, being a stock market genius is easy.

It has taken a serious drubbing to wake these geniuses from their intellectual slumber. The trend is down, and it is firmly established. "Nowhere to Hide" is an excellent summary of the situation in traditional stocks.

Me? I'm hiding in AUY, GRS, HL, SDS, EEV, ....

[jstratt]

Thank you for an insightful article. The chart of a status from around the world is an excellent broad view.

This is a good time for strategic rebalancing. For those who have wanted to enter China and India it is a good time to start dollar cost averaging into it.

I have wanted some exposure to these countries but emerging is synonomous with volitile. I always prefer to enter new markets during a period of calamity when I can clearly see some level of darkness priced into the market.

It is time to purchase into these two markets with 33% of my target long term exposure. That said China could drop another 50% for all anyone knows. Emerging is synonymous with the statement "we really dont know how to value this opportunity"

Finally isnt it nice to see that for US citizens that for all the US problems, most of the rest of the world has been hit harder so far.

[lep]

This is a good article reflecting the "nowhere to hide principle" in global markets. While I realize this is not a forum, has anyone published a comparison of projected inflation/recession in Europe, Japan, Singapore, Brazil, China? Also, which sectors would be doing better in Europe, Brazil?

[johndough110]

it's all ball-bearings these days

[theinvestingspeculator]

All markets are down but, when some start to come back, there will be winners and losers. US will be a loser, China will be a winner.

[Hue101]

???? Guess its going to be a long season .. holding on to an ETF called EWZ.. ahhhhh and just to think.. my chances doubled in that play.. a good lesson I have learned...

[SeamusO'Bannion]

Dear Hue101,

Your EWZ has a good chance of bouncing here, as it just tagged its 200 day moving average. Target might be the fifty day MA, about 10 pints up. Then probably down again. Big inflation in Brazil & rest of SA, with increasing interest rates - never propitious for stocks. EWZ has also been underperforming the DJ Wilshire 5000 since late may.

Best,
Seamus O'Bannion.

[JimHawthorne]

Excellent cautionary article... The fleeting rewards offered by a temporary bounce pale in comparison to the risks of a crash, which history shows us can be born out of extremely oversold conditions!

[mkreisel]

China and US are now sitting in the same boat, except that China has taken up the most cyclical sector of the US industry, namely the manufacturing of consumer-discretionary products.

In case you don't know, China's own housing bubble has just burst. Only Shanghai's inner city is still holding up.

[bbzz24]

why talking about coupling/decoupling mating/demating??? it is simple return to reality from overly optimistic expectations around the world. still all markets seem quite overpriced.

[iThinkBig]

In June of 2007 I could see this as a perfect economic storm, the oil spike/shock has certainly added a negative twist. Five years till the next bull market and we will be fortunate now to avoid depression like conditions, albeit they would be short-lived. Will Washington get it's head out of it's ass now? That sure would help some, specifically on energy policy.

[low]

So then, ultimately the credit is extended to doomsayers.
That being so, the market may never correct upwards as generally desired. This being so, the process is not and never was a gamble. The general public continues to rely on conditional snippits of info and the big dogs continue to playout their strategies.

Well researched estimations we may trust concerned observers to offer if so inclined. But ultimately, when XYZ desires to corner a given market utilizing disposable fronts-we are mostly left as bit players in that charade. Just like Bear Sterns. You know, I actually thought there was something unholy involved in that event. It seemed that unheard of, oh
the lamentations. In at 2 and out at 30, by now I could have stuffed tt in all my bill collectors mouths.

But the truth is, it is a gamble. Even when it appears
to be relaying the facts. Of curse the whole world can end at any time, but in hindsight (We're always forced to look at "In The Mean Time") as having been the real issue. Therefore my present strategy has been modified to simplistic terms. "Keep an eye on the food chain (whats eating who and who'se eating what), then place your bets accordingly". That is, assuming you entertain the notion of survival!

[low]

I know you know I meant to say "course", even if cursed it is!

[User 64625]

Maybe you should look closer to home than far away and smaller Australia i.e. Canada!

[fxtrader07]

good article with valid conclusions, but: the indices, more than ever hide the true picture. most stocks have lost way more from their highs than the averages suggest. if it were not for a few sectors like oil, gas, energy, certain ITs, agriculture and other commodity related stuff then the averages would have been down way, way more.
the point i want to make is that the downside in many individual stocks is rather limited from here (beyond panic-induced short-term spikes down), short interest is sky high for many stocks (even if accounting for a growing number of long-short funds) and the SEC's naked short regulations have achieved the well to be expected zero-effect so far with stocks being on the regshoe-list for many months experiencing ever higher short ratios - something that certainly is a clear sign of manipulation and no-enforcment of rules.
bottom line: at one point a lot of stocks will stop falling down and go up rather sharply, triggered in all likelihood by a drop in oil prices. which, in turn will bring the so far strong performing sectors sharply down, even if just temporarily. the effect will be a subdues rally in the indexes but a quite sharp one in certain sectors.

[VelShan]

Dear Gentlemen, when I see all this discussion about market, value, correction, bottom, peak, etc I am sad to see the most important word of all - that is "citeras paribus".

I was thought that the words mean - "everything else being equal".
I was told that all economic theories are based on "citeras paribus".

That got me to panic and travel all around the world to see any country where economy was run based on that principle.
Well guess what? Every country has hidden and sometimes not so hidden regulations to ensure that the economy is always "growing".

No country, including the USA has a free market.
Because of this manipulation of market, growth sometimes is artificially boosted. Look at the so called "Tiger" economies of South East Asia. These countries were artificially boosting their economy using borrowed money.

USA has done the same for the last decade by issuing Bank Securities as collateral. The scheme went too far including creating non-existing high priced housing market to attract foreign money into USA.

All this borrowing and artificially increased house value boosted the consumer economy.

Now the time is for all this to collapse as it has happened before in all other countries.

The bottom is yet to come. Because everyone who can afford is still holding on to their positions. The only way American Stock market can improve is to allow foreign takeover of American corporations.

But the US Government will not allow it.

This is exactly what happened in Korea with its Chaebols and Indonesian Conglomerates who refused to give up their ill gotten assets. Korea managed to destroy the power of Chaebols and recover its country. Indonesian could not.

Which model will play out in USA is yet to be seen. Till then don;t bet my friends.