With the S&P 500 just barely hanging on to gains in 2015, a lot of investors would tell you that it hasn’t been a great year for stocks. On a comparative basis, though, the US is holding up extremely well especially versus emerging markets. The chart below shows the relative strength of the S&P 500 versus the MSCI Emerging Markets index (in dollar adjusted terms). When the line is rising, it indicates that the S&P 500 is outperforming the MSCI emerging markets index while a falling line indicates that emerging markets are outperforming. Looking at the chart, it has been quite a long time where there was any meaningful period of time where emerging markets outperformed. In fact, you have to go all the way back to 2010 to find a time where there was any extended period of time where emerging markets outperformed the S&P 500. As a result of this extended period of outperformance by the US, the relative strength of the S&P 500 is now at its highest level relative to emerging markets since August 2004!
While emerging markets around the world have seen varying returns, the vast majority (and then some) have been weak. The chart below shows the YTD returns of the benchmark equity indices for the 23 countries that make up the MSCI Emerging Markets Index on a dollar adjusted basis. Of the 23 countries, the only two that are up on the year in dollar terms are China and Egypt. Of the remaining 21 countries, a third (7) are down over 20%! In absolute terms, US equities haven’t been the best investment this year, but look on the bright side, you could have been long South American emerging markets, where Columbia (-50%), Peru (-39%), and Brazil (-38%) have all lost over a third of their market value.
You can use our Global ETF Cheat Sheet to find ETFs that track a large number of emerging markets.