Wednesday, January 29, 2014

Five-year Market Review: Thinning Participation, More Questions Than Answers

This chart-heavy post is coming out of a conversation I had with Credit Bubble Stocks on Twitter on Saturday: while a number of OECD equity indexes have been making all-time or post-2009 highs as of earlier this month, there are plenty of country, regional, industry and asset-group indexes that are well below their post-09 highs.

Is participation in the recovery getting thinner?
Did "global risk on" die by mid-2011?
Is it all a matter of capital flows and FX?
What is Mr. Market telling us here?
There's probably more than one answer, but here are some charts that caught me eye. I am using only US/USD ETFs so obviously local market highs will be different.

Post-crisis peak:
Late 2009: Italy EWI, Spain EWP
Late 2010: China FXI, India EPI, Brazil/Chile/Peru/Colombia EWZ ECH EPU GXG, entire Frontier Markets FRN
April 2011: entire Emerging Markets EEM, commodity index DBC (heavy in oil %), Canada EWC, Australia EWA, South Africa EZA, S&P Metals and Mining XME, Silver SLV, Coal KOL (has its own issues), Steel SLX
Sept 2011: gold GLD, gold majors GDX
Sept 2012: bond market index (AGG), emerging market debt EMD
May 2013: all the income plays (real estate IYR, utilities XLU, mortgage REITs REM, preferred stock PFF, IG and HY corporate LQD JNK, MLPs AMJ)
Dec 2013: US retail XRT?

Will more geographies or sectors continue to "peel off" the rally?

Here are the five-year charts.

  Peaked around October 2009: Italy EWI and Spain EWP.

Peaked around October 2010: Frontier (not Emerging) Markets FRN, China FXI, India EPI, Brazil EWZ, Chile ECH, Peru EPU, Colombia GXG

Peaked around April 2011: Emerging Markets overall EEM, Commodities overall DBC, Canada EWC, Australia EWA, Russia RSX, South Africa EZA, Metals and Mining XME, Steel SLX, Silver SLV, Coal KOL

Peaked around Sept 2011: Gold GLD, Gold Majors GDX
Peaked around Sept 2012: the aggregate bond index AGG, emerging markets debt EMD
Peaked around May 2013: Real estate IYR, Mortgage REITs REM, Utilities XLU, IG Bonds LQD, HY Bonds JNK, Preferred Stock PFF, Master Limited Partnerships AMJ
Finally, peaking (quite possibly), in December 2013, Retail XRT: