2015 2Q performance – international markets

Equity and commodity markets

The following chart shows the returns on a range of international stock markets and commodities in the second quarter of 2015.

2015 2Q International market returns

NOTES

  1. The Euro markets, Germany, Italy, France and Netherlands, after a strong first quarter all saw negative returns in the second quarter.
  2. Apart from India, a strong quarter for the BRICs.
  3. A weak quarter for metals.
  4. Despite falling back steadily in May and June, the strongest performer here was Brent Oil on the back of a very strong April.

Currency markets

The following chart shows a sample of currency moves against the British pound in 2Q 2015. For example, the British pound strengthened 5.8% against the US Dollar, and 1.0% against the Russian Ruble.

2015 2Q Pound sterling performance

As can be seen, in the last quarter sterling strengthened against all currencies in this sample.

Equity and commodity markets (sterling)

The following chart shows the returns on the same markets as in the first chart, but this time in sterling terms (i.e. showing the currency-adjusted returns for a UK investor).

2015 2Q International market returns (GBP)

NOTES

  1. Over the second quarter UK investors saw their returns on international markets pared back due to the strength of sterling. (In fact, of the 22 sample markets here, UK investors would have seen positive returns in only four.)

Equity and commodity markets (dollar)

The following chart shows the returns on the same markets as in the first chart, but this time in US dollar terms (i.e. showing the currency-adjusted returns for a US investor).

2015 2Q International market returns (USD)

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2015 1Q market review – international markets

Equity and commodity markets

The following chart shows the returns on a range of international stock markets and commodities in the first quarter of 2015.

2015 1Q International market returns

Notes

  1. The Euro markets, Germany, Italy, France and Netherlands, dominate the top of the performance chart this last quater.
  2. At the bottom are the commodities (gold, oill and platinum), and US stocks.

Currency markets

The following chart shows a sample of currency moves against the British pound in 2015 1Q. For example, the British pound strengthened 14.5% against the Brazilean Real, and fell 8.8% against the Russian Ruble.

2015 1Q Pound sterling performance b

Equity and commodity markets (sterling)

The following chart shows the returns on the same markets as in the first chart, but this time in sterling terms (i.e. showing the currency-adjusted returns for a UK investor). The order of the markets has been kept the same as in the first chart, to highlight the effect of the currency moves.

2015 1Q International market returns (GBP)

Notes

  1. Over the first quarter sterling strengthened against the Euro (thus diminishing the effective returns from Euro markets), and weakened against the US dollar.
  2. A major positive impact for UK investors was the weakness of sterling against the ruble which boosted returns on Russian equity exposure.
  3. Conversely, the weakness of the Brazilian Real  acted to reduce returns on Brazil equities.
  4. While oil fell 4.0% in dollar terms in the quarter, UK investors saw a small positive return of 0.8%.

Equity and commodity markets (dollar)

The following chart shows the returns on the same markets as in the first chart, but this time in US dollar terms (i.e. showing the currency-adjusted returns for a US investor).

2015 1Q International market returns (USD)

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Correlation of UK and international stock markets

The following charts show the correlation of monthly returns between the FTSE All-Share index and six international indices for the period 2000-2014.

 


 

Correlation of FTSE All-Share Index and DAX [2014]


Correlation of FTSE All-Share Index and CAC40 [2014]


 

Correlation of FTSE All-Share Index and Nikkei 225 [2014]


 

Correlation of FTSE All-Share Index and Hang Seng [2014]


 

Correlation of FTSE All-Share Index and All Ordinaries [2014]


 

Correlation of FTSE All-Share Index and Bovespa [2014]


Analysis

The first observation is that all the markets are positively correlated with the UK market.

The next question is how closely correlated are they?

The following table summarises the R2 values for the correlation between the FTSE All-Share Index and the six international indices; the equivalent values are also given for the previous year. The higher the R2 figure the closer the correlation (R-Squared is a measure of correlation – in effect, how close the points are to the line of best fit).

Index R2 R2 (2013)
CAC40 0.78 0.79
DAX 0.69 0.70
All Ordinaries 0.61 0.62
Hang Seng 0.48 0.49
Bovespa 0.45 0.47
Nikkei 225 0.37 0.39

By visual inspection it can be seen that in the charts of CAC40 and DAX the points are more closely distributed around the line of best fit. This is confirmed in the table where it can be seen these two markets have the highest R2 values with the FTSE All-Share (the CAC40 value of 0.78 is now higher than that of 0.76 for the S&P 500). The index with the lowest correlation with the UK market (in the sample) is the Nikkei.

The practical impact of this is that if a UK investor is looking to internationally diversify a portfolio they would do better by investing in markets at the bottom of the table (low R2) than at the top. And the good news for investors looking for diversification is that the correlation between the UK market and all the international markets in this study has fallen in the past year.

See also correlation between the US and US stock markets.


UK Stock Market Almanac cover [160 x 240]The above is an extract from the newly published UK Stock Market Almanac 2015.

Order your copy now!

 

 

 

 

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2014 1Q market review – international markets

Equity and commodity markets

The following chart shows the returns on a range of international stock markets and commodities in the first quarter of 2014.

International market returns 2014 1QNotes-

  1. Italy!
  2. FTSE 100 was the second weakest equity market in the G7
  3. Apart from India, the BRIC’s 2013 weakness continued into the first quarter.

Currency markets

The following chart shows a sample of currency moves against the British pound in 2014 1Q. For example, the British pound strengthened 7.9% against the Russian Ruble, and fell 4.6% against the New Zealand Dollar.

Pound sterling performance 2014 1QEquity and commodity markets (sterling)

The following chart shows the returns on the same markets as in the first chart, but this time in sterling terms (i.e. showing the currency-adjusted returns for a UK investor). The order of the markets has been kept the same as in the first chart.

International market returns 2014 1Q (GBP)Notes-

  1. As GBP strengthened a small amount against USD and EUR in the period this had the effect of reducing (marginally) the gains in US and Euro denominated markets in sterling terms.
  2. Sterling-adjusted, the Indian equity market jumped over gold to be the second strongest market in the period.
  3. Although the Brazil equity market fell in the period, sterling investors would have seen a gain due to the weakness of GBP against BRL.

(Similar analysis for 2012, 1H 2013, 2013.)

 

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US holidays and European markets

Summary

European stock markets tend to have positive and high returns on days when the NYSE is closed. The effect is significant when the previous day’s return on the NYSE has been positive.

Brief overview

The US has six holidays every year that are not holidays in Europe:

  • Martin Luther King Day (the third Monday in January)
  • President’s Day (the third Monday in February)
  • Memorial Day (last Monday in May)
  • Independence Day (the fourth of July)
  • Labour Day (the first Monday in September)
  • Thanksgiving day (the fourth Thursday in November)

How do the European equity markets  behave on these days when the US markets are closed?

This was the question asked by the authors of an academic paper (Casado, Muga and Santamaria, 2011).

The authors analysed open and close values for the CAC40, DAX, FTSE 100, IBEX35 and EUROSTOXX50 (for the euro-zone stock market)  for the period 1991-2008. Their results were remarkable.

Their research found the average daily returns for the European markets when the US market was closed was 0.32%, which was 15 times greater than the daily returns on all days.The greatest (NYSE-closed) daily returns were 0.42% for the German market.

Interestingly they found similar results for the open to close data on the NYSE-closed days. Meaning that the information from the previous day’s US market had been fully absorbed at the market open, and the effect is attributable to European trading.

Because the effect is so great it has a clear economic significance as it is possible to obtain significant returns after deducting trading costs by trading index futures.

The following figure from the paper shows the result of systematically buying FTSE 100 futures at the open on a NYSE-closed day and where the previous day’s NYSE return was positive, and then closing the position at the close on the same day. The red line is the equity chart for the strategy (left axis), and blue line the FTSE 100 Index (right axis).

Casado_The effect of US holidays on the European marketsThe strategy had positive returns in both bull and bear periods for the market.

Reference

Casado, Jorge and Muga, Luis and Santamaria, Rafael, The Effect of US Holidays on the European Markets: When the Cat’s Away (2011)

 

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2013 market review – international markets

Equity and commodity markets

The following chart shows the returns on a range of international stock markets and commodities in 2013.

International markets returns 2013

A few notes-

  1. Japan was easily the strongest market in this selection in 2013 (+56.7%)
  2. The FTSE 100 was the weakest of the G7 markets here.
  3. Not a good year for the BRICS.

Currency markets

The following chart shows a sample of currency moves against the British pound in the year. For example, the British pound increased 25.4% against the South African Rand, and fell in value 2.1% against the Euro.

Pound sterling performance 2013Equity and commodity markets (sterling)

The following chart shows the returns on the same range of markets shown in the first chart, but this time in sterling terms (i.e. showing the currency-adjusted returns for a UK investor). The order of the markets has been kept the same as in the first chart.

International markets returns 2013 (GBP)Some notes-

  1. UK investors would have seen a return in the Nikkei 225 of 26.6% (down from 56.7% after adjusting for the large fall in the yen against sterling).
  2. The strongest sterling-adjusted market in 2013 in this selection was Nasdaq (+35.7%).
  3. The second strongest market was the FTSE 250.
  4. In domestic currency terms the Australian market rose 15.1% in 2013, but UK investors would have experienced a loss of 3.1% in this market as sterling increased 18.8% against the Aussie dollar.
  5. Except for China, the losses in the BRIC markets were exacerbated by the strength of sterling against their currencies. For example, a domestic currency loss of 15.5% in the Brazilian market became a 28.0% loss for UK investors in that market…
  6. …and the same for gold and silver as sterling appreciated against the US dollar in the year.

(Similar analysis for 2012, 1H 2013.)

 

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Performance of international markets 1H 2013

The following chart shows the performance of a selection of equity and commodity markets for the first six months of 2013.

And the following chart plots the same markets but for returns in sterling.

 

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International markets in 2012

Equity and commodity markets

The following chart shows the returns on a range of international stock markets and commodities in 2012.

Notes-

  1. The German market was the strongest (+29.1%), followed by the Asian markets of India, Japan, and Hong Kong.
  2. The FTSE 100 was ranked 22 out of the 25 markets appearing here.
  3. Over half the markets increased by more than 10% in 2012.

Currency markets

The following chart shows a sample of currency moves against the British pound in the year. For example, the British pound increased 16.5% against the Japanese Yen, and fell in value 6.7% against the Polish Zloty.

Equity and commodity markets (sterling)

The following chart shows the returns on the same range of markets shown above, but this time in sterling terms (i.e. showing the returns for a UK investor).

Notes-

  1. The German market remains the strongest for 2012, with its returns reduced from 29.1% to 26.4% due to the slight appreciation of GBP against EUR over the year.
  2. A big difference is the return for the Nikkei Index in sterling terms – falling from 22.9% to 5.5%.
  3. In sterling terms the FTSE 100 climbs from 22nd position to 15th.
  4. And in sterling terms the FTSE 250 Index climbs to 2nd position.
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