Global Stock Markets: The Financial Comeback Kid

With all eyes on the U.S. stock market and the return of the “Trump trade,” few investors are focused on global equity markets.

It is easy to see why. Global stock markets have disappointed investors so much, for so long, that most simply have stopped looking at stock markets outside the United States altogether.

The go-go years of the late 1990s, when emerging stocks soared by double-digit percentages year after year, have long faded from financial memory.

Yet, it’s precisely at the point of capitulation — when all investors have thrown in the towel — that stock markets bottom and tend to enter into a stealth bull market.

Although we are only six weeks into the New Year, 2017 just might be the year that global stocks finally make their long-overdue comeback.

Global Stock Markets: ‘This Time It’s Different?’

I track 47 global stock markets on a daily basis.

I cover these particular 47 because each is a global stock market in which you can invest readily through exchange-traded funds (ETFs).

There is no point in getting excited about the rip-roaring Hungarian stock market if there is no ETF in which you can invest.

Still, with global stock markets performing so poorly in recent years, you may be wondering: “Why bother?”

After all, among these 47 global stock markets, the U.S. stock market has dominated the performance tables for over a decade.

The Vanguard Total Stock Market ETF (VTI) — my proxy for the U.S. stock market — ranked No. 1 over 10 years, No. 2 over five years (behind Ireland) and No. 1 over three years.

Still, to paraphrase John Templeton’s most dangerous words in investing: “This time may be different.”

Here’s why…

The broad-based Vanguard FTSE Emerging Markets ETF (VWO) is already up 9.17% this year.

That means that emerging markets are outperforming the S&P 500’s Trump-fueled gain of 3.99% by over 2 to 1.

Six weeks into 2017, a whopping nine out of 47 global stock markets I track are up by at least double-digit percentages. Three of these markets are up by over 15%.

These are the kind of numbers that get investors’ blood flowing.

In another six months, these same investors may start partying like it’s 1999.

The Global Top Three of 2017

With that, here are the top three global stock market performers of 2017.

1. Global X MSCI Argentina ETF (ARGT) is up 16.60% since Jan. 1.

The Global X MSCI Argentina ETF tracks a market-cap-weighted index of at least 25 companies headquartered or listed in Argentina and which carry out the majority of their operations in Argentina.

Despite achieving its status as a developed country a century ago, Argentina today is a frontier market. The economic reforms of a new government may help Argentina graduate into full-fledged emerging market status within the next 16 months. The market’s recent strong performance reflects savvy investors front-running this upgrade, which may boost the local market with $1.7 billion of new money from foreign investors.

ARGT’s expense ratio is on the high side at 0.74%. It currently yields a mere 0.33%. With assets of close to $100 million, this ETF is unlikely to disappear anytime soon.

2. iShares MSCI Poland Capped ETF (EPOL) is up 16.34% since Jan. 1.

The iShares MSCI Poland Capped ETF tracks a market-cap-weighted index of the broader Polish stock market. EPOL invests over half of its assets in the top 10 companies. Despite being the big kahuna in Eastern Europe, most of Poland’s largest firms are considered mid-caps by U.S. standards.

The Polish market’s strong performance is due mainly to the Standard & Poor (S&P) upgrade of the market. The upgrade came after the rating agency confirmed that the current Trump-style populist government would not jeopardize the independence of the Polish central bank.

EPOL’s expense ratio is 0.64%. It currently yields a solid 1.93%. It boasts a solid asset base of $215 million, which should ensure its survival.

3. iShares MSCI Brazil Capped ETF (EWZ) is up 16.26% since Jan. 1.

The iShares MSCI Brazil Fund tracks a market-cap-weighted index of the Brazilian stock market.

The impeachment of former President Dilma Rousseff last August failed to dampen market sentiment. Brazil closed 2016 as the best-performing major stock market of the year.

The six-month-old administration of Michel Temer has boosted the market even further.

The new president secured a constitutional amendment to cap government spending. Combined with social security reforms, these changes have improved Brazil’s prospects considerably in the eyes of the few global investors still bothering to look.

EWZ tracks the Brazilian market closely, despite having little small-cap exposure. Costs are low, trading volumes are high and spreads are tight.

EWZ’s expense ratio is 0.63%. It currently yields 1.63%. With assets of $4.72 billion, this is one of the largest global stock market ETFs around.

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