August Is The Worst Month For Emerging Market Equities

Many emerging market stocks have performed poorly so far this year. After a strong run until last year, emerging markets have declined this year due to a multitude of factors including rising oil prices, impact of trade war initiated by the US, rising US dollar, etc. Hence some of the major markets of the developing world are down. For example, Mexico’s IPC Index is off by 1.9%, Chile’s IPSA is down by 6.7%, China’s Shanghai Composite is down by over 14%, etc. The benchmark MSCI Emerging Markets Index has declined by 7.15% in USD terms.

Given the under-performance of these markets, Lilian Karunungan of Bloomberg notes in an article that August has been historically the worst month for emerging market stocks.

Click to enlarge

Source: Emerging-Market Investors May Want to Skip Next Month, Bloomberg

The Long Term Net Return for the MSCI Emerging Markets Index against two other major MSCI indices are shown in the chart below:

Click to enlarge

Source: MSCI

Related ETFs:

  • iShares MSCI Emerging Markets ETF (EEM)
  • Vanguard MSCI Emerging Markets ETF (VWO)

Disclosure: No Positions

S&P 500 Intra-Year Declines and Annual Price Returns 1948 to 2017: Chart

One of the biggest factors that impact investor returns with equity investing is selling out when markets correct.  Patience and not panicking is the key to long-term success with stocks. Just as stocks can go up they go down as well. For instance, the S&P 500 has seen annual average declines of 13.8% since 1948. Yet the annual returns in terms of price changes only have been positive in 51 of those 70 years as shown in the chart below.

Click to enlarge

Source: Capital Group

So the key takeaway for investors is that when markets declines staying put and not selling out is important. As we have discussed many times on this blog, trying to time the market is a foolish idea.

Related ETF:

  • SPDR S&P 500 ETF Trust (SPY)

Disclosure: No Positions

Central Bank Balance Sheets as a Percentage of GDP For Major Economies

The Balance Sheets of Central Bank of major economies have been increasing for many years now as a result of the many Quantitative Easing(QE) programs implements. The following chart shows the Central Bank Balance Sheets as a Percentage of GDP For Major Economies:

Click to enlarge

Source: The Long Unwinding Road—Navigating Regime Shift, T.Rowe Price

The Periodic Table of Total Returns for Asset Classes 2000 to 2017

The Periodic Table of Total Returns for Asset Classes is hard to find on the internet. The regular Periodic Table by Callan and others based on price returns is widely available online. Since total return is more important just than price returns for long-term investors the following chart is especially fascinating for analyzing returns.

The Periodic Table of Total Returns for various Asset Classes from 2000 to 2017 is shown in the chart below:

Click to enlarge

Source: Matasii

For example, in 2016 the S&P price return was 9.84%. However with dividends included the total return was 12%. Similarly the MSCI Emerging index soared by about 50% based on total returns last year.

Related ETF:

  • SPDR S&P 500 ETF Trust  (SPY)

Disclosure: No positions

Intra-Year Declines of S&P 500 Index Since 1948

Intra-year drawdowns in the S&P 500 are common in the S&P 500 or any other index. The same can be said of any individual stock as well. Though S&P has had intra-year declines of an average of 13.4% since 1948 the annual price returns have been positive in 51 of the past 70 years.

Click to enlarge

Source: Capital Group

The key takeaway for investors is that long-term success in equity investing involves being patient and not getting worried everytime the S&P 500 falls in any year.

Related ETF:

  • SPDR S&P 500 ETF Trust (SPY)

Disclosure: No postions