Emerging Market Annual Returns By Country From 2007 To 2021: Chart

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Emerging markets offer some of the top investment opportunities in the world of overseas markets. However they come with more risk than developed market equities. For investors able to withstand the sometimes stomach churning volatility emerging markets can offer excellent returns. The following chart shows the returns of emerging market country returns from 2007 to 2021 based on the MSCI index for each country:

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Note: Returns shown above are based on the respective MSCI Index Total Annual Returns (includes dividend reinvestment) in US Dollar terms.

Source: Novel Investor

The best performing country last year was the Czech Republic followed by Taiwan and India. Taiwan is the second best market for two years in a row due to its high concentration in the tech sector especially semiconductor and hardware. India and Mexico performed well also.

Turkey had the worst returns because of its currency collapse and other chaos. Chile and Brazil were also in the negative in 2021.

Overall the colorful chart shows that no country retains the top spot every year and hence the importance of diversification cannot be overstated.

For an interactive version of the above chart visit The Novel Investor site.

Related ETFs:

  • iShares MSCI India ETF  (INDA)
  • Market Vectors Russia ETF (RSX)
  • iShares MSCI Mexico Capped Investable Market (EWW)
  • iShares MSCI South Korea ETF (EWY)
  • iShares MSCI Taiwan ETF (EWT)

Disclosure: No positions

US vs. Foreign Equity Markets: Concentration of Top 5 Stocks 1990 to 2020

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The universe of foreign stocks available for investment is huge relative to the US market. Thousands of firms trade on a range of markets from other developed countries to emerging and frontier markets. Foreign equity markets are also less concentrated than the US markets and hence offer excellent opportunities for stock pickers. In addition, going overseas offers diversification benefits as well. I have written about concentration in the US markets before many times some of which you can find here and here and here.

Yesterday tech giant Apple(AAPL) crossed the $3.0 Trillion market cap making it the first US company ever to reach that milestone. The past few years and more specifically last year much of the gains in the S&P 500 have been concentrated in the five major firms including Apple. Last year the top five accounted for 31% of the index returns.

I came across a research whitepaper recently that discussed the case for international stocks. The following chart from the paper shows the weightage of the top 5 firms in the US market as represented by the S&P 500 index and foreign markets using the MSCI World ex-USA index from 1990 to 2020:

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Source: Six Charts That Make the Case for International Equities and Value by Daniel Woodbridge, HartfordFunds

While the top 5 in S&P 500 represents nearly a quarter of the index the top five in the international equities index denote just 7%. This shows how narrow breadth of the US markets.

Related stocks:

Disclosure: No positions

WSJ: Defense Stocks Are At Their Cheapest Valuations Now

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One of the sectors that offers steady income and growth is the defense sector. Unlike other sectors such as utilities or industrials, defense industry is unique in that much of the future business depends on the federal budget. So this creates a cloud of uncertainty over defense stocks. However the good news is usually requested funds are allocated by Congress. Last month, the House approved a bill that allocates $25 billion more than requested by President Biden according to an article in the journal.

In another article last week Jon Sindreu at the journal noted that defense stocks are at their cheapest valuations now in eight years. From the article:

Contrary to expectations, though, the political deal hasn’t rekindled investor optimism much. Having lost ground during the pandemic, military stocks are now at their cheapest valuations in eight years.

Some analysts blame sustainable-investment trends, but the bull market has been unkind to all equities insulated from economic cycles, which gain less from the pandemic reopening. Higher inflation shrinks the budget in real terms and could squeeze the margins on big programs like the F-35 fighter, which makes up 30% of Lockheed Martin’s LMT 0.52% revenues, even if history shows that cost increases are eventually passed on to customers.

Wall Street’s optimism was also dealt a blow when Lockheed, Northrop Grumman NOC 0.66% and L3Harris LHX 0.14% recently provided disappointing outlooks.

Yet investors are concerned about a deeper-seated problem, too: Defense firms may have stuck too much to their traditional role as steady dividend payers at a time when they need to accelerate investments in technology.

Source: How Silicon Valley and a New Pentagon Strategy Are Breaching the Defense Business, WSJ

The key argument of the article was the lack of focus on innovation among legacy defense companies and rising competition from non-traditional players like Amazon(AMZN), Alphabet(GOOG), General Motors(GM), Palantir (PLTR), Microsoft(MSFT), Oracle(ORCL), etc. I do not believe these companies are going to disrupt the military companies in any significant way. So investors interested in gaining exposure to the defense sector can consider adding stocks in a phased manner.

The following charts show the proposed 2022 budget:

Source: National Priorities Project

Some of the top defense stocks for further research are listed below:

  • Lockheed Martin (LMT)
  • General Dynamics (GD)
  • Boeing (BA)
  • Northrop Grumman (NOC)
  • L3Harris Technologies, Inc. (LHX)
  • Raytheon Technologies Corporation (RTX)
  • BAE Systems PLC (BAESY)
  • Ingersoll Rand Inc (IR)

Disclosure: No positions

Why Diversify Across Asset Classes: A Canadian Example

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The US equity markets have had another excellent year with the S&P 500 on track to close out 2021 with a total return of over 29%. This is the 3rd year in a row the index has shot up by double digit percentage points. It remains to be seen if the bull market will continue in 2022. With that said, it is important to not get too complacent. One of the key strategies I have repeated in this blog over the years is diversification. Investors should not put all their eggs in one basket instead diversify across many asset classes. Diversification can also include holding various assets across countries, regions, etc. The key point is not to YOLO one’s assets into some meme stocks like Gamestop(GME) or AMC(AMC) to strike it rich quickly. The meme stocks phenomenon is an aberration to say the least in the grand scheme of things.

In any given year, various asset classes perform differently as expected. For example, in 2020 emerging equities were the best based on the MSCI Emerging Markets Total Return in Canadian dollars while cash was the worst with a paltry 0.6 return. US stocks were the top performers in 5 of the 10 year period from 2011 to 2020. Canadian equities had the best return only in one year in 2016 during the same period.

The following chart shows the returns of various asset classes from 2011 to 2020 in Canadian Dollars:

 

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Note: US returns (S&P 500 Total Return Index) shown above have different figures since they are in Canadian Dollars. 

Source: RBC Global Asset Management

For an interactive version of the above chart go to the RBC site.

Related ETFs:

  • iShares MSCI Emerging Markets ETF (EEM)
  • Vanguard MSCI Emerging Markets ETF (VWO)
  • Vanguard Developed Markets Index Fund ETF (VEA)
  • SPDR S&P 500 ETF (SPY)
  • Vanguard Total Bond Market ETF (BND)
  • SPDR® Barclays High Yield Bond ETF (JNK)
  • iShares MSCI Canada Index Fund (EWC)

Disclosure: No positions

Covid-19 Levels Soar Across The U.S.

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The daily average for Covid-19 cases in the US reached 301,472 yesterday according to NY Times. In the past 2 weeks, it has soared by more than 153%. All previous records are getting broken in many states across the country.

Compared to other developed and even emerging countries, the vaccination rate is still low at 62%. The following awful chart from CNN below shows the community transmission of Covid-19. Pretty much the whole country is in the red category.

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Source: Omicron surge is ‘unlike anything we’ve ever seen,’ expert says, CNN

Below is all-time Covid-19 cases chart:

Source: The U.S. breaks its single-day case record, nearly doubling the highest numbers from last winter, NY Times