As noted in our Q3 review, the foreign equity markets showed strong resilience in the face of constant headline news throughout 2019.
As noted in our Q3 review, the foreign equity markets showed strong resilience in the face of constant headline news throughout 2019. Both developed and emerging markets rallied sharply through December as both trade and political risk fears began to recede. In our minds, it is a positive that the deep negative interest rate environment has begun to reverse. It should be noted that the German 10Y Gov’t Bond yield has rallied sharply from -.70bps in September to -.18 bps today (Dec. 30th). Perhaps the markets are sniffing out better growth or the central bank negative rate experiment is over. A more normalized yield environment reduces the unknown to some extent.
For much of Q4, the developed nations led by Europe and Japan dominated the emerging markets from a performance standpoint. This action began to reverse itself in December, with Asia showing strong demand. It is difficult to comprehend how poorly the foreign equity markets have performed over the past decade. Many markets are trading at or below their 2007-2012 levels. With multiple foreign governments and banks discussing increased fiscal stimulus vs. the failed monetary stimulus, we are encouraged that an intermediate to longer term bottom may have occurred in August 2019. From an allocation standpoint, broader global strength could be helpful to investors much like we witnessed from 2003-2007.
We close the year overweight Europe, Taiwan, and Canada on the developed side, while long areas of Asia in the EM.
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