Global Stock Market Update: Clearly A Bull Market Rotation

This is a fantastic update from Bespoke Invest on the performances of global equity markets for the first quarter.
From Bespoke, (all bold highlights mine)

``The average year-to-date performance of the 81 countries listed below is 6.94%. With a YTD gain of 5.27%, the US is just below average. Only 12 of the countries shown are down so far in 2010. Three Eastern European countries are leading the way this year with the biggest gains -- Ukraine (58.87%), Estonia (41.36%), and Romania (29.89%). Bermuda is down the most with a YTD decline of 31.39%.

``Looking at just the G-7 countries, Japan is up the most so far in 2010 with a gain of 6.62%. Japan is followed closely by Britain (+6.13%). The US ranks third out of G-7 countries, while Italy has been the worst of the group with a decline of 0.18%. Of the BRIC countries, only Russia is doing better than the US in 2010. Brazil, India, and China have all underperformed the US. China is one of the 12 countries that is down."

Additional comments:

1. Data and commentary above describes only the current conditions. This means they exclude prior actions which has significant influences in shaping the present state of the markets. Such exclusions thereby distorts the overall perspective or does not give a good representation of the big picture.

2. Bull market in global stocks is clearly undergoing a rotation. Former laggards ('crisis' affllicted nations) are now mostly in the higher echelon, while former leaders are now in reprieve or among the "median" or mediocre gainers.

3. While BRICs have lagged G7 nations, the differences have been marginal. In contrast the BRICs lead G7 by a mile in 2009. However this appears to be changing, as BRIC seem to be regaining momentum. We can expect the BRIC to close this gap or go ahead by the next quarter.

4. Different folks, different strokes.

China's underperformance has been more due to government's applied strong arm tactics on the markets to contain bubbles. Ergo, government intervention has prompted for China's lag.

In contrast, OECD or G7 nations have governments providing continued support to their markets (QE). In short, China is somewhat applying actual tightening measures while G7 nations are relegated to rhetorical actions. Obviously, the divergence of policy actions has resulted to this short term variance.

5. Philippines, despite its recent breakout, remains in the lower ranks and importantly trails her closest neighbors (Indonesia, Thailand and Malaysia). This implies more room for an uptrend.

6. Venezuela, which suffers from increased socialism, as measured in increased inflation (devaluation of Bolivar), remains on the upside. My point: high inflation does not necessarily mean lower markets, this depends on the state of the inflation cycle.

7. Contra Keynesians and Fisherians: Where is deflation??!!

Global CDS Update: World Credit Stress Easing

Here's an update on the world Credit Default Swap (CDS) market from Bespoke Invest.

Based on the Feb 5 lows, as Bespoke observes, ``Portugal default risk is down the most at 40%, followed by Austria (-38%), and Spain (-32%). Vietnam, Argentina, and Egypt are the only countries that have seen default risk increase.

While most of the CDS have been significantly down from the early February anxiety, they are mostly up compared to the start of 2008 except for Lebanon and Kazakhstan.

Such easing of credit concerns adds to our "sweet spot" scenario.

Global Stock Market Update

Bespoke Invest provides an update of global markets from two perspective: advance from the recent February 8 lows and a year to-date performance.
According to Bespoke:

``Sixty-five out of the 81 country indices listed below are up since the markets made their recent correction lows on February 8th. As shown, Greece (the country causing everyone to get all worked up recently) is up the second most of any country shown since 2/8 with a gain of 11.92%. The Ukraine is up the most with a gain of 12.69%. Brazil has been the best performing BRIC country with a gain of 7.88%. Five of the seven G7 countries are doing better than three of the four BRIC countries since the recent lows. Britain, Canada, the US, France, and Germany are all up more than Russia, India, and China during the most recent rally. For the year, 44 out of 81 countries are in positive territory, with Estonia, Ukraine, and Bangladesh leading the way. The US is outperforming all four BRIC countries so far in 2010. Slovakia, Dubai, and Spain have been the worst performing countries this year, all with declines of more than 10%."

I'd like to add that while indeed the G7 has generally outclassed the BRIC and major emerging markets, I wouldn't count on this phenomenon to last.

Second, it is noteworthy to see the Philippines stage a strong comeback from the recent lows and place among the top ten. I'd be more comfortable to see our neighbors close the gap.

Lastly despite brouhaha over Greece, as pointed out by Bespoke, she is the second best performer since the Feb low but still down for the year. One would note that the Baltic states which had been slammed hard at the height of the crisis, has now outperformed the world for the year. We can't underestimate similar performances from the PIIGS as the crisis breezes over. But again, every nation have their own quirks.

Scorecard From This Week's Global Equity Bloodbath

This chart from Bespoke presents a good coverage of this week's resurgent volatility. According to Bespoke,

``As shown, both the G-7 and BRIC countries sit at the top of the list of worst performers. The countries that have held up better are located mainly in the Middle East, Africa, and Eastern Europe.

``Combining the BRICs and the G-7, Russia has done the worst since Tuesday with a decline of 6.33%. But Brazil and the US are not far behind with declines of more than 5%. Italy, France, and Germany are all down around 4.75%, followed by Britain at -3.81%. There has been lots of talk about China partly at fault for the global sell-off, but the country itself is down just 3.64% since 1/19. Japan has by far done the best of the G-7 and BRIC countries over the last three days with a decline of just 1.62%."

While it is true that BRICs got equally hit as hard as the G-7, the picture isn't complete. In any comparison, points of references are important because they can tilt balance of presentation.

Remember, in 2009 the BRICs outperformed the G-7 by a wide wide wide margin hence it should be natural for them to bear the brunt of the recent carnage.

However, last week's selloff reveals that the damage hasn't been significantly different. And if the current correlation continue, one can expect the BRICs to materially outperform its G-7 counterparts anew.

Although as seen from a year to date (or on a 3-week) basis on the left column, the BRICs have marginally underperformed the G-7, however 3 weeks is too early to call.

Nevertheless the overall market conditions should give us some clues.

As mentioned by Bespoke some markets in former crisis plagued Eastern Europe and the Middle East have outperformed.

For instance, Estonia was up 7% on a week on week basis but is up 30% (!!!) on a year to date basis and so with her peers (also based on year to date) Latvia 15.04%, Lithuania 11.29%, Romania 7.2% and Ukraine 7.08 as well as Malta 13.27, Kenya 11.73%, Egypt 9.76% and so forth...

While everyone's focus (as indicated by Bespoke's article) has been on how the key markets got hammered (BRICs and G-7), what may have been ignored by the rest is how the broad periphery (emerging markets) had been vastly unfazed by the ruckus.

This for us, implies two significant messages:

First, that the periphery signifies delayed or belated reaction from the still to be felt ripples or

Second, that many emerging markets will likely show signs of meaningful divergences (decoupling), which could mark the theme for 2010.

And if it is the latter scenario, then this week's meltdown could be suggestive of a bear market trap.

Decoupling In Share of Global Stock Market Capitalization

Bespoke Invest provides us with an update of the market cap share of the global stock market pie for 2009.


According to Bespoke (bold emphasis mine),

``the US remains the biggest country with its stocks making up 29.61% of world market cap. This is more than three times Japan's representation in second place at 7.68%. At the start of the year, the US had 32.75% of world market cap, so its representation is down 9% in 2009 even though US equity markets are up. At 7.27%, China overtook the UK in third place in 2009 and is closing in on Japan.

``Brazil's percent of world market cap increased the most in 2009 at 58.2%. Its weighting has gone from 1.84% to 2.92%. Indonesia, India, Australia, Turkey, China, Russia, and Taiwan have all seen their weightings increase by 25% or more this year. On the flip side, Japan has lost the most market share of the developed countries, declining from 10.28% to 7.68%."

Additional observations:

In terms of the top 20 in market cap:

- 8 comes from Asia, 8 from Europe, 2 from Latin America.

-Except for Sweden, Canada and UK, developed countries mainly have suffered from a decline in the share of market cap

Overall, developing nations have been taking most of the growth in the share of global stock market capitalization at the expense of the developed nations.

Yet if current trend persists, then most of the action is likely to be seen in developing nations.

Apparently, this also seems to validate the actions in the global IPO market [see Decoupling In Global IPO Markets], crisis nothwithstanding.

Dubai's Bubble Cycle

Dubai's imploding bubble is another lesson that needs to be taken heed.

Inflationism can be initially seductive and temporarily gratifying, but comes at an excruciating price as a result of non-economically feasible projects or misallocation of resources.

The chart from Bespoke Invest is a harrowing depiction of the unraveling Dubai Bubble cycle as reflected on its stock market benchmark.


Bespoke explains, ``Since 2004, Dubai's stock market has taken investors on a wild roller-coaster ride. Unfortunately, investors are at the bottom of the ride and not the top at the moment. From the start of 2004 to November 9th, 2005, the DFM General rose a whopping 748% as oil prices shot up along with the global economy. After the DFM General peaked on 11/9/05, however, it declined 57% over the next year and a half. The index staged a 72% snap-back rally from 4/3/07 to 1/15/08, but then it jumped on the global meltdown bandwagon and has declined 71% since then. Currently, the DFM General is down 78% from its peak on November 9th, 2005, but it is still up 83% since the start of 2004."

To quote Professor Ludwig von Mises, ``Continued inflation inevitably leads to catastrophe."

How Long Does Gold Prices Take To Hurdle Every $100 mark?

With gold above $1,200, how long does gold prices take to hurdle every $100 mark?

That's the interesting perspective proffered by Bespoke Invest as shown in the chart below.

According to Bespoke, (bold emphasis mine) ``the amount of calendar days that transpired between century marks for the price of gold. For example, after closing above 200 for the first time on 3/6/78, gold didn't close above the $300 mark for another 459 days (6/8/79). However, after closing above $300 for the first time, gold breezed through five different century marks over a span of only 223 days. In January 1980, the price of gold closed above $700 on January 15th, and then closed above $800 two days later! [that's because this marked the euphoric stage or the end of the bubble-Benson]

``And keep in mind that with each successive century mark, the percentage rally required to get to the next hurdle declines ($300 to $400 equals a 33% gain, while a rally of only 9% is needed to get from $1,100 to $1,200). If the price of gold were to stage a rally similar to the one in 1979, $1,200 gold would seem like small peanuts."[present market action reflects a cocktail of momentum, seasonal strength and importantly, driven by the concept of gold as insurance-Benson]

Dubai Blues As Seen In CDS, It's All About Perception!

A cliche goes, 'what you see depends on where you stand'.

For many, this could be rephrased as 'what you see depends on what you are looking for'. In the behavioral aspects, this means looking to confirm a bias or selective perception. For the bears, the Dubai incident has served as a rallying cry for their much awaited deflation blow-up scenario.

The chart from Bespoke exhibits on the default risk as measured through the Credit Default Swaps (CDS) on a year to date basis for 39 nations.
For a clearer image press on the link.

According to Bespoke, "we highlight current credit default swap prices and the year-to-date change for the sovereign debt of 39 countries. As shown, default risk has declined for every country except Japan in 2009, including Dubai."[underscore mine]

What this means is that despite the present turmoil, default risk measures haven't reached or is quite distant [yet] from the magnitude as it had been at the start of the year.

So unless the succeeding events deteriorate more, this volatility may be a head fake signal more than a genuine inflection point.

Global Stock Market Performance Update: BRICs Firmly In Command

The following is an updated year to date stock performance among 82 countries monitored by Bespoke Investment.
According to Bespoke, ``So far this year, 71 of the 82 countries are in positive territory, and the average change of all countries is 33.27%. With a gain of 20.76%, the S&P 500 is 13 percentage points below the average, yet it's the second best G-7 performer behind Canada so far in 2009.

``The BRIC countries (Brazil, Russia, India, China) have been standouts this year. Russia is up the most out of all countries with a gain of 126.71%. Brazil, China, and India are all up more than 70%. Along with Russia, the Ukraine, Argentina, and Peru are up more than 100% year to date.

``Eleven countries are down so far in 2009. Ghana is down the most at -48.26%, followed by Puerto Rico (-40.56%), Bermuda (-38.36%), and Costa Rica (-35.37%)."(bold emphasis mine)

My additional comments:

Asia constitutes half of the 20 best performers including the Philippines (16th).

Yet if one includes Israel (Western Asia) that should translate to 55%. Moreover, Turkey and Russia are both Euro-Asian countries.

It's fundamentally a rising tide lifts all boats dynamic except for the 9 outliers.

Latin American bourses have been mixed- Peru and Brazil are top performers while 4 are among the worst (Ecuador, Costa Rica, Bermuda and Puerto Rico)

The gap between the BRICs and G7 economies are miles apart.

In addition if the average gain is 33% then G7 economies fall below the average despite the positive performance.

The wide chasm accounts for the divergent impact of the crisis as well as the varying impact of the reflationary policies adopted.

BRIC Horse Race: Russia Leads, China Trails

Bespoke Invest shows of the relative (horse racing) performances of BRIC countries.

According to Bespoke, ``After leading the BRIC countries (Brazil, Russia, India, China) in year-to-date performance by a wide margin a few months ago, China is now doing the worst... Russia's stock market is now doing the best in '09 with a gain of nearly 100% (98.5%). India is up the second most at 77.5%, followed by Brazil at 62.4%, and finally China at 52.6%. And while the other three BRIC countries remain in nice uptrends, China looks quite the opposite."

It would appear that Bespoke likes to "pick" on China for unknown reasons.

Nonetheless, we would like to add that Russia's RTSI earlier fell almost 30% from its MAY 2009 high prior to this recent outperformance. So the May decline served as a "bear trap" for any BRIC skeptics.

And considering the still loose monetary environment, China's market via the Shanghai index could replicate Russia's performance.

Ticker tape reading today's activities into the future isn't guaranteed.

Global Stock Market: Investors Recover $18.31Trillion

Fascinating charts from Bespoke. It shows of how global stock markets have "V"-igorously bounced.


This from Bespoke, ``At its peak in 2007, total world market cap was $62.57 trillion. By the lows this March, world market cap had dropped to $25.6 trillion! That's a loss of $36.97 trillion in stocks globally. Since the March lows, however, world market cap has risen $18.31 trillion back up to $43.9 trillion.

Again from Bespoke, ``In the US, market cap has risen $4.88 trillion from its low of $8.09 trillion in March. The peak in total US stock market value was $19.14 trillion in 2007, and the current value of all US stocks is $12.97 trillion. The US accounts for 29.5% of total stock market value in the world."

Additional comments:

1) It has been a rising tide lift all boats phenomenon which clearly has been a manifestation of liquidity driven markets.

2) global stock markets are about 30% away from full recovery.

3) US markets still account for one third of stock market value, albeit on a downtrend. This phenomenon is similarly seen in developed economies.

chart from livemint.com

In contrast, emerging markets continues to capture a larger share in the global market cap due to secular forces which has been punctuated by the recent crisis.

According to Manas Chakravarty of livemint, ``The decline in the share of the global pie of the advannced economies is not just due to the current crisis but is a long term trend. According to projections from Credit Suisse, the percentage share of global consumption of the US will decline from 30.2% in 2007 to 20.8% by 2020. In sharp contrast, the share of Chinese consumption is projected to improve from a mere 5.3% of global consumption in 2007 to 21.1% by 2020. India’s consumption, which was 2% of global consumption in 2007, is forecast to rise to 5.3% by 2020. By 2020, according to the Credit Suisse forecasts, China will be the largest contributor to global consumption and India will be the fourth largest."

I think it is more than that. Asia and emerging markets likely move towards less dependence on the banking sector and expand utilization of the capital markets to deepen the financing intermediation within the economy and the region.

Of course there is also the issue of the divergent impact from inflationary policies on developed economies relative to emerging markets and Asia.

Global Stock Market Performance Update: Despite China's Decline, Emerging Markets Dominate

No trend goes in a straight line. That's the fundamental truism of the marketplace.

Yet some analysts have taken China's monstrous 2 week decline as something to gloat on.

True, China has entered the bear market cycle based on the 20% decline technical rule.

But it is unclear that she could suffer from the same fate of the 2008 meltdown. Yet, we won't bet on such idea, especially not when global policymakers have been targeting the asset markets.

Nonetheless here is the updated year to date global performance chart from Bespoke Investments.

From Bespoke Invest, (bold highlight theirs)

``After a 20% decline in a matter of days, China is now just the third best performing BRIC (Brazil, Russia, India, China) country year to date. Russia is up 57.24% year to date, India is up 53.51%, and China is up 52.99%. But it could be worse for China. At least they're not down 50% year to date like Ghana.

``You can tell how much China has sold off versus the rest of the world by looking at its percentage from its 50-day moving average. China is one of just 5 countries that are up year to date and currently trading below their 50-day moving averages, and it is the second furthest below its 50-day (-10.34%) out of all countries behind only Nigeria (-11.97%)."

As we discussed in Global Stock Market Performance Update: Proof of Rotational Effects and Tight Correlations, it has been quite evident that the pricing of global stocks appears to be in rotation, which clearly is a symptom of global inflation dynamics.

Moreover, despite the precipitate 20% decline in China, they remain at the tenth spot among the world's best performers.

China's decline simply brings the BRIC (Russia-7th, India- 9th and Brazil 11th) in a tight pack of the race.

Recall earlier too that Russia fell 30% before rebounding (top window) but has presently been creeping higher. The same actions had been realized in India (BSE) and Brazil (BVSP) but both have recovered strongly.

In contrast, China's rise has been vertiginious or without any major correction since February. So the sharp decline seems much desired, as to normalize its long term trend. The same dynamics seen in its peers are likely to take hold on China's Shanghai index once it establishes a bottom.

Yet regardless of China's recent fate, the BRIC and emerging markets has simply outclassed, by a mile, developed economies, where 9 of the top 20 have been Asian bourses (by pecking order: Indonesia, Sri Lanka, Vietnam, India, China, Taiwan, Philippines, Singapore, Thailand and Hong Kong).

So it would seem like a pointless exercise to gloat over China's recent losses. In horse racing lingo, China's recent decline could be interpreted as part of the "handicapping" relative to developed economies.

Anyway here is the chart (courtesy of Bloomberg) of the world's topnotch equity bellwether-Peru.

If there is anything to be discerned from the above, no trend goes in a straight line.

Global Stock Market Performance Update: Proof of Rotational Effects and Tight Correlations

This is an example of how experts use specific time frames to prove a point.

This from Bespoke Invest,

(bold highlights mine)

``The S&P 500 is up 11.24% since July 10th, which is a significant move in such a short period of time. The recent gains also put the index up nicely at 8.28% year to date. As shown below, the US has performed well relative to the rest of the world. Since July 10th, it ranks 22nd out of 82 countries. Russia is up the most with a gain of 24.23%, followed by Hungary, Poland, Norway, Romania, and Germany. Middle and Eastern European countries have seen some of the biggest gains in recent weeks."

Adds Bespoke, ``While China has been the second best performing country (behind Peru) year to date, it is only up 10.32% since July 10th. This is better than most countries, but it hasn't been the worldwide leader that it was earlier in the year. Five of the G-7 countries have outperformed China, and all seven G-7 countries are in the top 50% in terms of performance. This is a sign that developed markets have been holding their own against emerging markets in recent weeks. Only ten out of 82 countries are down since July 10th, with Slovakia leading the way at -5.67%."

We are grateful to Bespoke for their wonderful graphics.

However, with China's year to date gains at a mindboggling 88.66% and with the Shanghai benchmark at grossly overbought conditions, it would be a puzzle or an irony to expect a continuation of such torrid pace of advances or even make a worthwhile comparison. 88% versus 9% (year-to-date) is just a wide wide chasm.

As we earlier wrote in Global Stock Market Performance Update: Rotational Effects and Tight Correlations

``If global markets have been driven by liquidity or monetary forces or inflation dynamics then it is quite obvious that there will be rotational effects and secondly, for the early movers some tight correlation, as global liquidity transmission interlinks divergent markets."

Hence, our views seem to get validated where we appear to be indeed witnessing rotational effects from inflationary policies as the market leadership has temporarily switched from (leaders) emerging markets to the (laggards) developing markets.

Another, as Bespoke likewise observed, only 10 out of 82 since July 10th are down, or 17 out of 82 global benchmarks on a year-to-date basis-signifies further proof of the "global liquidity transmission interlinks divergent markets", we earlier posited. Market gains seem to broadening on a worldwide basis, but not all.

Russia's RTS outperformance appear to be a function of a typical bullmarket trend.

As we commented in the same article, ``Russia's hefty decline exhibits overheating. The Russian benchmark is still the 5th best year to date performer IN SPITE of the recent (21%) downturn. It trails Peru, Sri Lanka, China and India."

Indeed, after a 50% fibonacci retracement since the March lows, Russia has used its recent reprieve and the opportune windows provide by developed markets as fulcrum to stage another gala rendition (even at the face of a mighty performance by developed economies.)

Bottom line: ``developed markets have been holding their own against emerging markets" because of the rotational effects and global liquidity transmission of the global inflation dynamics more than representative of idiosyncratic strength or traits.

At the end of the day, emerging markets has still patently outperformed its developed counterparts under present "ultra loose monetary" conditions.

Presidential Approval Ratings and Stock Market Returns

An interesting insight by Bespoke Invest on the correlations of Presidential approval ratings and stock market returns.

This from Bespoke Invest, (bold highlights mine)

``When looking at the complete history of approval ratings, it was hard to believe that even though he left office as one of the most unpopular Presidents ever, at one point George W. Bush's approval rating was higher than any other President in the post-WWII era. Ironically, the prior record appears to be held by his father, whose popularity also hit its lowest levels near the end of his first and only term. Likewise, while Reagan has been viewed positively by both Republicans and Democrats, he and Nixon (and Obama so far) are the only post-WWII Presidents who never saw their approval ratings break above 70%.

``Taking the USA Today's look at Presidential approval ratings one step further, we added a chart of the S&P 500's year over year (y/y) performance during each President's term to see how a President's popularity was tied to the stock market. Not surprisingly, there is a strong relationship between the stock market's performance (which reflects the economy) and how a President is viewed. Presidents who were in office while the stock market was strong typically have been more popular and vice versa."

``In recent history, however, the relationship has been less consistent. For example, George W. Bush's popularity peaked when the market was weak, and as the stock market improved up until 2007, his popularity continued to decline. Likewise, while it's still early in his first term, President Obama came into office with an approval rating of 64%, but even though the markets have shown considerable improvement, his approval rating has seen a decline to 55%."

Think of it, the last paragraph suggests that falling popularity for President Obama has been coincidental with rising stock markets so there seems to be a loose connection.

Aside from the attractively colored chart which are meant to amuse, popularity measures seem to be an inaccurate way to evaluate, gauge or predict stockmarket activities, trends or returns. That's because popularity is mostly about superficiality and inherently fickle.

For instance, a popular president who undertakes populist policies may generate short term gains, but reap long term pains and vice versa.

What seem to matter more is the substance and direction of the policies employed.

Global CDS Markets: Goldilocks Is Back?

Is the world headed for Inflation or Deflation?

From the Credit Default Swap (CDS) market perspective…

NEITHER.

Instead, it has been a GOLDILOCKS time, as the cost of insuring debt has materially declined for most of the world except Japan, Israel and Iceland!

Markets have been pricing in reduced risks of sovereign credit defaults despite massive stimulus expenditures engaged by global governments as shown by the updated table of CDS standing by Bespoke.

Chart from Bespoke

And the best performers have been emerging markets.

This from Bespoke Invest, `Russia and China are in the top five of countries that have seen default risk decline the most. Germany and France haven't seen their default risk decline by much, but it also didn't rise nearly as much as other countries during the height of the crisis. Germany, France, and the US have the lowest default risk in the world.”

The Philippine sovereign has been ranked 13th among the best performers. No wonder the huge demand on its recent offering.

Well it is likely that this has been a short-term honeymoon, as the US Federal deficits have now exceeded US $1,000,000,000 9 months into the fiscal year.

Chart from John Maudlin/safehaven.com

And this seems more likely to be the proverbial calm before the storm.

25 Largest Companies of the World

25 largest companies in the world as compiled by Bespoke Research

According to Bespoke Invest, ``For those interested, we highlight the 25 largest companies in the world. For each company, we provide its country, sector, price (local currency), year to date change, and market cap in dollars. As shown, Exxon Mobil (XOM) is the biggest company in the world and the only one worth more than $300 billion. PetroChina ranks second and is the only other company worth more than $200 billion. The Industrial and Commercial Bank of China is the world's third largest company, giving China two of the biggest three. Wal-Mart and Microsoft round out the top five. The United States still dominates the list with 12 of the 25 spots. China ranks second with four spots. General Electric used to be the biggest company in the world, but it has slipped all the way down to the 18th spot. Google (GOOG) is also on the list at number 22."

Including China Mobile which has been classified under Hong Kong China has 5. Although the others have been spread among Japan 1, Britain 2, Brazil 1, France 1,Switzerland 1, Netherlands 1, and Australia 1.

By region North America has 12, Asia 7, Europe 5 and South America has 1.

What is interesting is that we are seeing more Asian companies in the race among the elite.

Global Stock Market Performance Update: The BRICs and Emerging Markets Dominate Gains

Bespoke Invest gives us a good rundown on the performances of global stockmarkets as of Apr 16th.

According to Bespoke, ``The MSCI World index bottomed on March 9th just as the S&P 500 did. Below is a table highlighting stock market performance for 83 countries around the world since March 9th and year to date. As shown, Ukraine is up the most since March 9th with a gain of 67%. Ukraine is followed by Puerto Rico, Romania, Peru, and Russia. Even after rallying 52.7% since March 9th, Puerto Rico is still down 34% year to date. Ten countries are actually down since March 9th, with Bermuda falling the most at 22%.

``Of the BRIC countries, Russia has done the best since March 9th, followed by India (34%), Brazil (24%), and then China (19.6%). Italy has been the best performing G-7 country with a gain of 37.7%. The US ranks second in the G-7, followed by Germany, Japan, and Canada. The UK has been the worst performing G-7 country since March 9th with a gain of 14%.

Bespoke uses the March 9th low as reference point from which has been premised from the US bottom.

We don't like to get caught in a selective perception since as the stockcharts.com above shows that China and Emerging Markets have begun to recover even prior to the US bounce.

We also don't buy the argument that the reason for outperformance of EM economies has been due to the degree of losses suffered. This "rear view mirror" perspective glosses over the overall boom bust performances of EM versus G7 from 2003-todate. It's no use to nitpick over "technicalities" though, since the playing field is always about tomorrow.

And our thought is that EM markets are likely to continue to outperform the structurally credit bubble-bust impaired G7 economies.

On a year to date basis, Bespoke adds, ``Year to date, Peru ranks first with a gain of 45.47%, followed by China, Pakistan, and Taiwan. Bermuda, Costa Rica, and Nigeria are down the most year to date."

We'd like to alter how the above quote has been framed.

On a year to date basis:

Except for Canada whose gains registered 2.58%, the rest of the G7 markets are all negative: Italy 6.45%, US 5.47%, Germany 4.17%, Japan 1.18%, France 5.59% and Britain 8.6%.

In contrast the BRIC's scorecard are all markedly positive: Brazil 21.2%, Russia 29.7%, India 13.48% and China 39.18%. Moreover, most EM markets are likewise up.

Our point: Global financial markets presently debunk the claims that "decoupling is a myth".

US Treasury Bills Go Negative!

A return to normal times? Not quite. That's if we are to base it on US treasury bills which has struck a negative yield last night!

Another nice chart from Bespoke...

According to Bespoke, ``While the equity rally is helping some investors feel like we are returning to something resembling a sense of normalcy, a look at the yield on the 30-Day US T-Bill shows that things are anything but normal in the credit markets. For the first time this year, its yield dipped back below zero this morning. Now the government is even taking money from people who want to loan it money!"

My comment:

These are not normal times, as markets have been severely distorted by massive government interventions.

Another, US treasuries are generally considered "risk free", yet the one month US T-bills yield returned marginally negative yesterday. Although an anomaly, this suggest that not even government backed papers can be qualified as entirely "risk free".

Global Stock Market Performance Update: The Charge of the BRICs

Year to date updated national stock market benchmark performances by Bespoke Invest...(as of March 26th)

Says Bespoke (bold highlight mine), ``Twenty-one countries are up year to date, while 62 are down. One positive that can be drawn from this table is that all four BRIC countries are now in the black for 2009. These countries were the leaders during the last bull market, and they have also been some of the biggest decliners during the bear. The fact that these key countries are now trending upward is a sign that global investors are beginning to take more risk. China is up the most of all countries at 29.71%, while Russia is up 19.11%, Brazil is up 12.13%, and India is up 3.69%."

My comment:

Risks can be defined in relative and/or subjective terms.

US policies have presently been directed towards the "nuclear option" of currency devaluation via the Quantitative Easing or "Gonoism". These suggest of increasing inflation, credit and currency risks for the US. Alternatively, the rising risk profile of the US implies that US assets are becoming "riskier" relative to the BRICs.

Besides, given that international portfolio flows are expected to markedly contract, the positive performances of the BRICs and EM economies could be a consequence of local savings flowing into local assets in response to the global negative interest rates regime.

This has been the case of the Philippine Phisix, which I suspect has been the same dynamic driving most of the BRICs or EM markets.

So one data can be interpreted from two opposing angles.

More from Bespoke ``Unfortunately, all of the G-7 countries are still in the red year to date. Canada has been the best among them, while Italy has been the worst. With a decline of 9.11% year to date, the US is performing slightly worse than the unweighted average of all countries."

My comment: If G-7 countries are down while BRIC are up, isn't this a sign of "decoupling"?

Has the Reverse Invisible Hand Been Responsible For The Dismal Performance of US Equity markets?

The US markets is on a milestone…a milestone low.

And Chart of the Day tells us ``The Dow is currently down 53.4% since peaking in October 2007. To put the magnitude of the current correction in perspective, today's chart illustrates the 15 worst corrections of the Dow since its inception in 1896. As today's chart illustrates, the current Dow correction already ranks as the second worst on record. Only the correction that began in 1929 was worse.”

While we often resist the temptation to attribute market movements to politics, this observation from Bespoke seems worthy to contemplate on.

From Bespoke Invest (bold highlights mine), ``While Washington has lauded the $787 spending bill as the medicine that will help bring the economy out of the recession that President Obama 'inherited,' the market is taking a different view. Consider this -- since the spending bill was passed by Congress on February 13th, the S&P 500 has lost over $1.8 trillion in market cap, which is over twice the size of the plan signed into law! The question for economists now is whether or not the positive multiplier effect associated with the spending bill will be enough to offset the negative multiplier effect from the proportionately bigger decline in the value of US equities in the pension funds, IRAs, 401k's, and investment accounts of Americans.”

Is this merely a coincidence? Or is the market signaling disapproval on government's action? The market losses have apparently been greater than the stimulus packages drawn up by the US government.

More from Bespoke, ``As shown in the chart above, during the first few weeks of President Obama's Administration, the Dow was rangebound with a slight negative bias. It wasn't until the stimulus bill was signed and the budget unveiled that the bottom fell out of the market. Since Inauguration Day, the Dow has declined 1,686 points (20.4%). Of those 1,686 points, 1,253 have come since the passage of the stimulus plan. While there are certainly plenty of other issues weighing on the market, it's hard to argue that the "stimulus" and budget proposal haven't had a negative impact. While the Bush Administration was criticized by investors for lacking clarity in its policies regarding the economy, Wall Street clearly is not comfortable with the actual clarity coming out of Washington today.

``With a 20.37% decline since Inauguration Day, the Dow's performance during President Obama's Presidency already ranks as the third worst among US Presidents since 1900.”

We saw a media jester convey a message in a show that markets don’t accurately reflect on people’s sentiment. That’s plain hogwash. People can say something but do the opposite. On the other hand, we suggest that markets reflect on actual votes-in terms of money in or out of their wallets. It signifies something like “people voting with their feet”.

Besides the US markets have nearly half of its populace exposed to the financial markets.

ICI estimates that some 52.5 million, or 45.0 percent, of households in the United States owned mutual funds.And the biggest share as shown above is in the ownership of stocks.

And likewise the US census estimates that 50.3% of households had exposure in stocks in 2005.

With the torrent of bailouts and or stimulus money thrown to rescue several companies in a funk, the Nasdaq OMX has created last January 5, “The Government Relief Index” meant “to measure the performance of the 21 stocks that received at least $1 billion in emergency government funding, is down a whopping 58 percent.” (US Global Investors)

This perhaps could be seen as another sign where markets appear to be refusing the endorsement of the hodgepodge of government sponsored programs which in essence marks a reversal of the invisible hand.

Which brings to fore a fitting quote from Peter L.P. Simpson posted at the Mises Blog,

``There is, one might even suppose, a reverse invisible hand at work. The free market is said to produce order and success as the unintended result of many producers and sellers and buyers independently pursuing their goals. So the controlled market seems to produce chaos and failure as the unintended result of many voters and politicians and bureaucrats independently pursuing their goals. Unlike the invisible hand of the free market, the reverse invisible hand is not benevolent. It is malign. It is the chief cause of economic booms and busts and of the accompanying delirium and distress where outrageous profits jostle alongside outrageous losses.” (bold highlight mine)