Rotation in international markets
Updated
Introducing the Buffett Indicator
One aspect of the recent rotation from growth stocks to value stocks is that investors have been rotating into undervalued markets that have suffered ten-year downtrends. The "Buffett Indicator" provides a way of comparing country-wise stock market valuations. The indicator divides total market cap (TMC) by GDP plus Total Assets of Central Bank (TACB) to calculate the Implied Future Return (IFR):
TMC / (GDP + TACB) = IFR
Developed Markets
Of the developed markets, Singapore ranks best for Implied Future Return:
Singapore (
EWS): 6.8%
Spain (EWP): 4.9%
UK (EWU): 4.7%
Australia (EWA): 4.0%
Most other developed markets have negative IFR. Of the emerging markets, Egypt has IFR above 25%, and Pakistan above 10%. Turkey, South Africa, and Indonesia are all above 8%.
Now look at how some of these indexes have been trading. Australia was one of the first to break out of its long down trend in November of last year:
Spain also broke out in November:
Now the UK has broken out as of yesterday, as you can see in the chart above. Singapore is lagging a bit in sympathy with China, but you can see that it's making a run at its trend line:
Emerging Markets
The developed markets have definitely outperformed the emerging markets in this rotation. That's because developed market currencies have been crushing the emerging market currencies. I think that we could start to see some emerging market strength, though. South Africa is climbing:
Here's Turkey, struggling to break that trend line:
Egypt looks to be working on a U-shaped bottom:
One aspect of the recent rotation from growth stocks to value stocks is that investors have been rotating into undervalued markets that have suffered ten-year downtrends. The "Buffett Indicator" provides a way of comparing country-wise stock market valuations. The indicator divides total market cap (TMC) by GDP plus Total Assets of Central Bank (TACB) to calculate the Implied Future Return (IFR):
TMC / (GDP + TACB) = IFR
Developed Markets
Of the developed markets, Singapore ranks best for Implied Future Return:
Singapore (
EWS): 6.8%Spain (EWP): 4.9%
UK (EWU): 4.7%
Australia (EWA): 4.0%
Most other developed markets have negative IFR. Of the emerging markets, Egypt has IFR above 25%, and Pakistan above 10%. Turkey, South Africa, and Indonesia are all above 8%.
Now look at how some of these indexes have been trading. Australia was one of the first to break out of its long down trend in November of last year:
Spain also broke out in November:
Now the UK has broken out as of yesterday, as you can see in the chart above. Singapore is lagging a bit in sympathy with China, but you can see that it's making a run at its trend line:
Emerging Markets
The developed markets have definitely outperformed the emerging markets in this rotation. That's because developed market currencies have been crushing the emerging market currencies. I think that we could start to see some emerging market strength, though. South Africa is climbing:
Here's Turkey, struggling to break that trend line:
Egypt looks to be working on a U-shaped bottom:
Note
I commenter points out that I accidentally posted Spain where I meant to post Singapore. Here's the Singapore chart:
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