- The Big Picture - http://www.ritholtz.com/blog -

Domestic vs Emerging Market Performance

Posted By Barry Ritholtz On May 23, 2006 @ 6:30 am In Investing,Markets,Technical Analysis | Comments Disabled

Two interesting data points today on the emerging markets and overseas performance:

First, a chart of Emerging Markets, to put into context the recent corrections.

>
Down 10 Days in A Row, (16 years)
Msci_emerging_market [1]
Source: Birinyi Associates, Inc. [2]

>

Paul Hickey of Birinyi Associates observes:

"Based on the Morgan Stanley Capital International Data, emerging market stocks are poised to trade lower for the tenth straight day for a total decline of over 10%. Since 1990, there have been three other occurrences where this index has had a similar string of down days in a row.

As the table below details, similar stretches of down days in emerging market stocks have been followed by additional losses with the end of the correction not occurring for another 20 to 47 trading days."

To help further contextualize this, have a look at the recent gains. For that, this perspective on emerging global market performance over the past 3 years is quite helpful, via  Crossing Wall Street [3]:

Brazil (EWZ)………………..433.95%
Austria (EWO)……………..275.42%
Mexico (EWW)……………..242.81%
Sweden (EWD)…………….174.01%
Australia (EWA)……………165.13%
South Korea (EWY)……….162.61%
Canada (EWC)………………161.36%
Belgium (EWK)……………..151.58%
Spain (EWP)…………………143.78%
Germany (EWG)……………139.12%
Italy (EWI)…………………..116.39%
Japan (EWJ)…………………109.14%
France (EWQ)………………107.73%
Switzerland (EWL)…………98.81%
Hong Kong (EWH)…………..97.52%
U.K. (EWU)…………………….89.00%
Netherlands (EWN)…………82.27%
Malaysia (EWM)……………..68.05%
Taiwan (EWT)…………………67.08%

By comparison, the S&P 500 Spyders ETF (SPY) is up just 52.81%.

>

Thus, by implication, you might assume the outperformance of overseas markets could eventually subside, while the underperformance here should catch up.

Don’t jump to any contrary conclusions just yet: what you are seeing is to a large degree a mean reversion of sorts. Put this into perspective: in the 1990s, the US outperformed overseas markets — many dramatically — with Europe relatively slow, and Japan utterly flatlined.

Thus, these numbers above are the recent mean reversion of the prior 20 years or so . . . In other words, after decades of under-performing the US, emerging markets are now outperforming. I expect the mean reversion to last longer than the 3 years we just witnessed . . .

UPDATE: May 23, 2006 10:47am

Mike Darda of MKM Partners offers some perspective on the emerging market correction [4];

Meanwhile, the WSJ offers a trifecta of articels  on emerging markets:

Fairy-Tale Ending May Elude Economy [5]

Losing Some Sizzle  [6]

Jitters Over Rising Interest Rates Send Emerging Markets Tumbling [7]

Source:
Foreign iShares Since 2003 [3]
Eddy Edelfenbein
Crossing Wall Street, May 17, 2006
http://www.crossingwallstreet.com/archives/2006/05/foreign_ishares.html

Emerging Market Selling
Paul Hickey,
Birinyi Research, May 22, 2006
Trading Monitor  Volume 2006 Issue 68  (pdf)


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2006/05/domestic-vs-emerging-market-performance/

URLs in this post:

[1] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/msci_emerging_market.png

[2] Birinyi Associates, Inc.: http://www.birinyi.com/about.php

[3] Crossing Wall Street: http://www.crossingwallstreet.com/archives/2006/05/foreign_ishares.html

[4] some perspective on the emerging market correction: http://www.mkmpartners.com/RES/economic/052306.pdf

[5] Fairy-Tale Ending May Elude Economy: http://online.wsj.com/article/SB114831232486159604.html

[6] Losing Some Sizzle  : http://online.wsj.com/article/SB114833550553959911.html

[7] Jitters Over Rising Interest Rates Send Emerging Markets Tumbling: http://online.wsj.com/article/SB114833899173859996.html

Copyright © 2008 The Big Picture. All rights reserved.