Continued uncertainty on the global economic outlook means that over the last 18-24 months many international investors’ portfolios will be down. All major developed market indices are lower now than at the beginning of 2015, with the exception of USA, UK and Australia. The latter two of course are in GBP and AUD respectively, both of which have devalued substantially against the USD over the same period.
Whilst USA stockmarkets represent about a third of global listed equity, the US economy seems mysteriously disconnected from the rest of the world’s troubles. Even as more countries join the already dozens of economies with zero or negative interest rates, the US Federal Reserve is hinting at a possible increase in rates within the next few months. The US domestic consumer is of course the engine of that nation’s GDP, with the USA less reliant on exports for growth than most of the rest of the world (exports are only about 14% of GDP, compared with 45% for the Euro area for example). Nevertheless a further strengthening USD will have an impact, not least via the corporate debt risk in developing markets.
The current state of markets serves to underline the importance of your strategic asset allocation. Present levels of volatility, and potential for economic shocks, mean some caution is possibly appropriate; however shorter term tactical reallocations may turn out to be nothing more than gambling on guess work. Stick with the long term plan and an asset allocation that matches your risk profile; relatively more defensive with lump sum assets, and somewhat more adventurous for regular savings - remembering that dollar cost averaging works, but needs time to do so.
Major stock index performances as at July 2016
Charts of all the above indices follow below.
Dow Jones Global Index - World Developed Markets
The Dow Jones Global Index is a capitalisation weighted index covering 95 percent of global capitalisation across 48 countries (25 developed markets and 23 emerging markets).
MSCI EAFE (Europe Australia Far East) - World Developed Exc.USA
One of the most common benchmarks to measure international equity performance outside of North America (USA & Canada). EAFE covers large and mid-cap equity in 21 developed market countries in Europe, Australia and Southeast Asia.
MSCI Emerging Markets - Global Emerging Markets
The MSCI Emerging Markets Index captures large and mid cap representation across 23 Emerging Markets (EM) countries. With over 830 constituents, the index covers approximately 85% of the free float-adjusted market capitalisation in each country.
S&P 500 - USA
The Standard & Poors 500 Index is a market capitalisation index of 500 of the largest North American companies (chosen by committee) listed on the NYSE and NASDAQ exchanges, together totalling about 80% of the available market, hence representing about a third of total market capitalisation globally.
Nikkei 225 - Japan
The ‘Nikkei’ price-weighted average is the most common benchmark of Tokyo listed equity.
STOXX Europe 600 - Europe
STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
EURO STOXX 50 - Eurozone
A market capitalization-weighted stock index covering 50 of the largest, liquid, blue-chip European companies operating within eurozone nations.
FTSE 100 - UK
Tracks that largest 100 companies listed on the London stock exchange weighted by full value market capitalisation, with a qualifiying threshold of minium 25% free-float for UK incorporated firms. Note that a significant number are international firms which have a minimum 50% free-float requirement.
ASX 200 - Australia
The primary benchmark for Australian stocks, a market-capitalisation weighted index.
HSI 50 - Hong Kong
The Hang Seng Index is a free-float market-capitalisation index that tracks the 50 largest companies listed on the Hong Kong stock exchange, a little over 55% of the available market capitalisation.
STI 30 - Singapore
The FTSE Straits Times Index is a capitalisation-weighted index that tracks the performance of the top 30 companies listed on the Singapore Exchange.
SSEC - China
The Shanghai SE Composite is a weighted composite index of all stocks (A-shares and B-shares) traded on the Shanghai Stock Exchange.
BSE 30 - India
The Sensex 30 covers about 45% of the free-float market capitalisation of the BSE exchange (around 4700 firms; of which a sizeable number are illiquid).
BSVP - Brazil
A total return/accumulation index tracking about 50 stocks representing about 70% of market capitalisation on the Sao Paulo exchange.
RTSI - Russia