2017 – Year of the Foreign Stock
As we head into 2017 we leave behind a year marked by surprises. First, the continuation of the 2-year oil rout and subsequent recovery that saw oil prices plunge below $30 only to double from those levels today. Next came Brexit – with pre-vote polls showing a narrow but decisive victory for the stay party. However, when all the votes were counted, the leave camp eked out a victory, sending the pound and global equities tumbling. This was not to last as markets rallied into the U.S. election that brought yet another major surprise – a Trump victory and a U.S. equity rally to new highs on the back of a major bond retreat.
International markets diverged substantially - Emerging Markets posted the largest return differential of the year on 11/9/16; over 4% relative to the S&P 500. Developed Markets were barely able to post a positive year. One of the drivers of this move has been the incredible strength of the U.S. dollar, surging through the top of the 2+ year range in 2016.
Despite the strong bounce following the 2008 financial crisis, both developed and emerging equities have trailed the S&P by triple digits:
Performance of International since 2008:
Not all hope is lost as we have seen promising signs emerge from our quantitative processes. Our global strategies have keyed in on secular strength in countries such as Brazil, Russia, and Taiwan through the second half of 2016. Commodity-sensitive countries such as Canada and Australia began to enter the mix as well. In many of these cases, the underlying currencies have bucked the trend relative to the broader U.S. dollar strength.
We see this as a sign of improving global fundamentals that may be pointing to a broader reversal on the horizon. Already this year we have seen the strongest Euro-PMI in years, and a broad-based weak dollar move – the Euro has pierced 1.06 in today’s trading after closing 2016 below 1.04.
This confluence lines up nicely for 2017 and is our main focal point for the year within our Global Strategies; rising equity markets paired with appreciating local currencies is the best of all cases for foreign investments.
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