One of the smartest things you could have done with your money at the start of the year was to get it out of the USA.
American stock market indices have performed much worse than their overseas competitors so far in 2017. That’s despite the hoopla over the gains in the headline U.S. indices.
Meanwhile the U.S. dollar has tumbled sharply against major — and not-so-major — international currencies as well.
The net result is that those who diversified their wealth internationally are… well, winning.
Yes, the S&P 500 SPY, +0.12% has risen 13.3% this year. But during the same time, developed international markets have risen 17.5% and emerging markets a staggering 27%. (That’s according to the standard indexes used to measure both: the MSCI European, Australasian and Far Eastern or EAFE index 990300, -0.16% of developed international markets, and the MSCI Emerging Markets index 892000, +0.27% .)
MSCI Germany is up 22% and France 25%. Brazil is up 29% and China 45%. So far the U.S. is about in line with Japan, and with Great Britain, currently struggling with Brexit and political uncertainty.
Gloomier still is that these indexes really don’t reflect how the average company stock is doing. They’re mostly about a few behemoths like Apple AAPL, -0.65% and Alphabet GOOG, -0.64% . When you compare the average performance of all the stocks in the indices, the U.S. falls much further behind.
Actually, of the top 3,000 companies listed on U.S. stock exchanges, the median rise this year is 9%, and a third of them have actually lost value. A quarter of them are also forecast to report negative earnings for 2017 under generally accepted accounting principles.
Andrew Lapthorne, quantitative strategist at SG Securities, says weaker companies with the most debt have been doing worst this year. That’s sign that the market is starting to get more nervous about the economic conditions ahead.
Meanwhile the U.S. dollar BUXX, +0.02% has also been tumbling. It’s fallen 5% against the Swiss franc USDCHF, +0.1026% , 8% against the British pound GBPUSD, -0.4228% and the Australian dollar USDAUD, +0.4214% , and over 10 percent against the euro EURUSD, +0.0595% .
(On the positive side, at least the greenback is up against the Afghan currency, the afghani. By 2%.)
What goes around comes around. U.S. stocks are underperforming after several years of doing better than their competitors. From 2009 through 2016, for example, U.S. stocks left Europe, Japan, and emerging markets in the shade. That has, naturally, left U.S. stocks much more expensive than other markets on numerous measures. So sooner or later you might expect them to underperform.
The decline in the dollar may be a good thing, especially for U.S.-based manufacturers. It makes imports from overseas more expensive and U.S. exports to foreign companies cheaper. Any campaign to restore vast amounts of metal-bashing manufacturing to the U.S. economy is going to need to tank the dollar.
Happily, lots of uncertainty, crazy talk and political paralysis should do just that.
But what is good for the Ohio Valley is not the same as what is good for your portfolio. A falling dollar can lead to U.S. inflation, and is likely to lead to greater gains on financial assets held in other currencies.
One of the great puzzles for financial experts is why investors — in all countries — keep most of their assets in their home stock markets. The depressing conclusion is that it’s about “feelings.” People ‘”feel” their home equity market is more familiar.
This so-called “home country bias” is completely illogical. Simple diversification alone should drive anyone to hold a global portfolio. And that is especially true when political risks and uncertainty are high — like this year.