The S&P 500 graph might be the most watched single chart in the world. For a foreign investor, however, maybe the more appropriate chart is to look at the market in their local currency. Put another way, if an investor in Europe buys the SPY ETF, that European investor is likely more concerned with the performance of the SPY in Euro terms. He has to convert his Euros into Dollars when he first buys the SPY shares, and then convert the Dollars back to Euros when he sells the SPY shares.
Well today’s chart shows you how the U.S. stock market has been a safe haven for investors in more ways than one. It’s the chart of the SPY in Euro terms:
The chart shows just how well any European invested in the S&P 500 has done in the past year, especially relative to their local market. They’ve gotten the double bonus of general U.S. market outperformance (vs. almost all global marketS) as well as the strong outperformance of the U.S. Dollar versus the Euro in the last 12 months.
I like to look at this chart once in a while to gauge the psychology of foreign investors in U.S. stocks. As of now, they feel quite comfortable, as the S&P 500 in Euro terms is still holding above its 50 day moving average, and hasn’t tested its 200 day moving average since December of 2011. In fact, the S&P 500 in Euro terms is not far from 2007 levels!
The U.S. overweight position has been quite profitable, and it is my view that foreign investors have increased this overweight in the last few months as global economic data has come in weaker than U.S. data. I do think the investor positioning in the U.S. is stretched, but more weakness is probably needed before global investors get concerned enough to reduce their U.S. exposure.