Are the new China, emerging markets, and Eurozone bulls the old US permabulls? We should make some exceptions for those who are market timers, but it may as well be the case.
From 2015 to the end of 2024, the SPY ETF had gained 239.4%, while the Eurozone ETF (EZU) and the Emerging Markets ETF (EEM) were up 68.3% and 32.7%, respectively, and the China (FXI) ETF was down 6.7%.
Year-to-date, the China ETF (FXI) is outperforming with a gain of 26.6%. The Eurozone ETF (EZU) and Emerging Markets ETF (EEM) are up 18.1% and 8.4%, respectively, while the SPY ETF is down 3.2%.
Suddenly, we notice that many US stock market permabears of the past have turned into China, Eurozone, and Emerging Markets bulls. We need to make exceptions for those who are genuine market timers, discretionary or systematic.
Is the current rebound and US stock market underperformance going to continue?
A similar past period
We remember a similar period of excitement among foreign market bulls after the bottom in US stocks on March 9, 2009.
By December 31, 2009, Emerging Markets ETF (EEM) were outperforming with a gain of 103.9%, the Eurozone ETF (EZU) was up 90.7%, the China ETF (FXI) gained 81%, while the SPY ETF was up 67.4%. Many market analysts and fund managers were highly bullish on foreign stocks and even bearish on US stocks due to the uncertain effects of quantitative easing. We know what happened after 2012. We also sense a “revenge trade” possibility currently.
Is this time different?
Some people claim, “This time is different.” China announced a huge stimulus package, while in the USA there is talk about austerity. Europe has announced huge spending to militarize. There is not much talk about emerging markets. However, it is mostly speculation, and there is even a dose of wishful thinking.
In the event of a bear market in US stocks, we expect international stocks to get hit harder. Due to the GFC, the SPY ETF fell 55.2%, but the FXI ETF plummeted 72.7%, the EZU ETF cratered 65.3%, and the EEM ETF plunged 64.4%. Therefore, we do not believe foreign stocks will provide any kind of convexity or hedge in the case of a bear market in US stocks because they will be hit even harder. However, some analysts and hedge managers hold the belief that this situation will be different.
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