With over one-third of 2013 behind us, itâ??s worth taking a look at what have been the worldâ??s best performing stock markets so far this year.
I keep my finger in the pulse of global markets by monitoring 36 global stock markets for my firm Global Guru Capital on a daily basis. Note that these are all stock markets that you can invest in at a click of a mouse through a U.S.-listed exchange-traded fund (ETF) that tracks an index based on that market.
Truth be told, there isn’t much of an overarching investment theme that connects global stock markets this year.
In fact, just about the only thing the top five markets have in common is that they have next to nothing in common.
The Top Five Stock Markets in 2013
1. The Philippines
The Philippines has always had a low profile, even among the global investing crowd. Viewed as the sick man of Asia, it never had the cache of its higher-profile â??Asian Tigerâ? rivals — Hong Kong, Singapore, Taiwan or South Korea. And with a population of only 95 million, the Philippines does not have the demographic heft of, say, Indonesia (population 243 million), so that it could ever rival larger, BRIC (Brazil, Russia, India and China) economies.
But what the Philippines does have is economic growth, with its gross domestic product (GDP) expanding 6% this year. Moody’s expects the same rate of expansion in 2014. And if favorable economic trends continue, growth could hit a China-like 8% by 2016. No wonder Moody’s called this former economic underachiever one of the “brightest parts of a generally gloomy global picture.”
The Philippines’ greatest coup came last week when S&P upgraded its debt to investment grade. Fitch already had done so on March 27. The S&P upgrade was critical because some institutional funds require at least two investment-grade ratings before investing. This is something that even an emerging markets star like Turkey had yet to achieve.
iShares MSCI Philippines Investable Market Index (EPHE) versus the S&P 500
The iShares MSCI Philippines Investable Market Index (EPHE) is up 23.91% this year.
Without a doubt, Japan is the story of the year in global investing. The election of Prime Minister Abe in December and the appointment of a new Bank of Japan head dedicated to a radical form of quantitative easing have sent Japan’s stock market soaring in 2013.
This surge, combined with the devaluation of the yen, has been a boon for trend-following hedge fund investors. A yen-hedged bet on Japan has soared 31.26% so far this year.
And with the Nikkei cracking 14,000 for the first time in five years, the Japanese bull market shows no signs of slowing. Japanese multinational companies are celebrating as well. Sony recently doubled its profit forecast, thanks solely to the beneficial impact of a depreciating yen.
Another advantage of Japan is its size. Although it had fallen off the map of investors for the past 20 years, Japan still boasts the world’s third-largest economy after the United States and China. And with most global investors still massively underweight Japan in their portfolios, the increased attention Japan is getting should continue to boost the market for the rest of 2013.
iShares MSCI Japan Index (EWJ) versus the S&P 500
The iShares MSCI Japan Index (EWJ) is up 20.31% this year.
As recently as last year, investors still feared that Irelandâ??s economic woes could force the country out of the euro. But a major turning point came on March 13, 2013, when Ireland successfully raised money in international financial markets through the sale of a new benchmark bond. This positive reception put Ireland on track to become the first nation to leave a bailout program since the euro debt crisis started more than three years ago.
Irelandâ??s lenders have since trotted out the country as an example of how government deficits and the debt should be tackled by Europeâ??s other economic neâ??er-do-wells.
Ireland has plenty of challenges left. There is a huge disconnect between the Irish government as a â??star studentâ? among investors and its reputation for increasing taxes and cutting wages among voters. And Irelandâ??s economic Achilles heel is its exports, on which much of its economic recovery has depended.
iShares MSCI Ireland Capped Investable Market Index (EIRL) versus the S&P 500
The Irish stock market has entered a solid uptrend and the iShares MSCI Ireland Capped Investable Market Index Fund (EIRL) has had a better run than the already strong S&P 500 over the past six months and is up 15.42% year to date.
Switzerland is a global investor’s synonym for “safe haven.” Today, one-third of private investments worldwide are administered in the country.
With a population equal to Manhattan — about 8 million — and boasting the worldâ??s eighth-largest stock market, Switzerland punches above its weight. The World Economic Forum recently ranked Switzerland as the world’s most competitive economy for the fourth consecutive year. It is also home to global household names like consumer group Nestle, pharmaceuticals Roche and Novartis, as well as banking giants Credit Suisse and UBS.
A strong tradition of a stable economy, low inflation rate and strong currency explain much of Switzerland’s appeal.
But if youâ??re an American citizen, don’t bother trying to open a famed Swiss Bank account. With the U.S. government cracking down on its citizens, and Swiss banks home to tattle-tale bankers, you’d be very, very hard pressed to find a bank that would take your filthy American lucre.
That’s not the case for the iShares MSCI Switzerland Capped Index (EWL) which you can buy at the click of a mouse, and it is up 13.66% year to date.
iShares MSCI Switzerland Capped Index (EWL) versus the S&P 500
5. United States
Judging purely by stock market returns, U.S. investors should be among the happiest investors on the planet this year. With the S&P 500 breaking out to new highs, and the Dow Jones passing 15,000 last week, the U.S. market is hitting new record highs. Rarely has the U.S. market ranked as highly among global markets as it has in the past two years. Neither tax increases, political deadlock in Washington nor the much feared sequester has succeeded in derailing the U.S. market’s relentless rise.
Yet, the mood on the United States belies these record highs. Many â??mom ‘n popâ? investors have been left on the sidelines, still shell shocked by a decade’s worth of subpar returns. And many businesses are suffering from the onerous increases in government regulation and the looming impact of Obamacare.
The U.S. S&P 500 over the past six months
Technical cracks are appearing in the U.S. market as we enter the weakest time of the year. But for now, the U.S. stock market is one of the best houses in a bad global neighborhood and is up 13.60% in 2013.
It is highly unlikely that these rankings will look this way at the end of the year.
After all, Vietnam was a very hot market at the start of 2013 that has since fallen out of bed.
Remember, â??There always is a bull market somewhere.â?
But, unusually in 2013, you don’t have to look too far from home to find one.
Nicholas Vardy, CFA
Editor, The Global Guru