A Trip Around the World

Keeping with the theme of world travel, let’s look at how the global equity markets fared in 2012.

Here’s a chart of three ETFs that track major economic regions:

In green: the United States (SPY).

In orange: Europe (VGL).

And in blue: Asia-Pacific (VPL).

See larger image

Would you have guessed that European equities outperformed the U.S. and Asia in 2012? If so, good for you!

While SPY was up 11.7% in 2012, European stocks (VGL) did a little better, posting a gain of 14%. Asia-Pacific stocks lagged, gaining just 9.8% in the year.

But I bet this has caught many investors off guard. Especially those that only look to the mainstream media for their take on the markets.

Of course, a one-year snapshot doesn’t tell the whole story. Looking back to 2011 can put Europe’s outperformance during 2012 in context. A look back at 2011 provides one possible explanation for the seemingly weaker performance of U.S. stocks in 2012. Back then, European and Asian stocks were hit hard, down 16% and 17.4%, respectively. That’s compared to a relatively flat S&P 500 in 2011 (SPY dropped just 1% that year).

So how is it that global equity markets moved higher in 2012, especially with all the grim headlines out of the euro zone?

Quite simply, Europe and Asian markets got a boost from investors looking to buy in at bargain-basement prices. That helped European stock prices play catch up to U.S. stocks, gaining more in 2012.

Will we see more on the same this year?

I doubt it. With pricing across these markets now more normalized, we may see certain regions pulling ahead. But this is going to be a tough year for Europe. I expect Asian stocks to start the year off strong, likely outpacing European stocks for most of the year.

If you haven’t done so already read the Survive & Prosper issue on “The Best Predictive Insights Come From… Walking through History.



Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.