Macro Wrap – U.S., Europe, or China?

by Enis February 5, 2013 7:41 am • Commentary

What’s the market’s verdict on the best-looking region for investment over the past year?  Europe of course gets all the negative headlines.  China has transitioned from a laggard in early 2012, to a leader over the past 3 months.  The U.S. has been the slow and steady bull, inching higher no matter what.

This is the 1 year percentage performance chart of the 3 major indices, the SPX (red), the Euro Stoxx index in Europe (orange), and the Hang Seng (yellow):

SPX, SX5E, HSI 1 year percentage gain charts, Courtesy of Bloomberg


The Hang Seng and Euro Stoxx have been much more volatile than the SPX index, but they all hit their low point over the last year at the same time, on June 1st.  They also all hit their highest point of the last year at the same time, which was last week.  Since last week’s high, true to form as more volatile indices, the Hang Seng and Euro Stoxx have fallen more dramatically than the SPX.

Add it all up though, and over the last year, the 3 indices have performed quite similarly.  Both the SPX and Hang Seng are up about 12%, while the Euro Stoxx is a laggard, up only 5%, but the difference in performance has been as high as 15% at times over the past year.

I didn’t included the EEM, the emerging market ETF, on this chart to keep it uncluttered, but the EEM is close to flat in the last year, reflecting weakness in Korea, Taiwan, and Brazil.  Other emerging markets like Mexico and Turkey have been global leaders (see my thoughts here on why).

In short, picking specific regions, countries, sectors, and single stock exposures has paid off more in 2013 than in the past few years.  Correlation remains low, which warrants discretion in choosing your risks.  It’s no longer a simple risk-on, risk-off environment.

Markets Overnight:

  • Asia followed Europe and the U.S. lower, with the Nikkei and the Hang Seng both down around 2%.  The yen hit a new 2.5 year low against the dollar, to 93.45 now.
  • Europe rebounding after yesteday’s 3% loss, up about 1% this morning on little news.
  • Treasuries are lower after yesterday’s strength, and the dollar is mixed.  Commodities are mostly higher, led by oil.
  • ISM Non-Manufacturing data is released at 10:00 am EST