On December 8th, I mentioned the relative strength from Japan and the weakness from Germany, Australia and Canada.
I was reading IBD this morning and the paper has a graphical representation by country of the returns year to date of the benchmark ETFs for the countries in the table below. Note that Japan was the only country in the green in January and the extremely weak performance turned in by Germany. Germany is a mature economy compared with the higher growth countries such as Brazil and China. The weakness in Germany therefore sticks out more to me than the weakness in Brazil and China.
| Country | YTD Return |
| Japan | 1% |
| Russia | -0.30% |
| United States (S&P 500) | -3.70% |
| South Korea | -4.60% |
| England | -4.80% |
| Mexico | -5.80% |
| South Africa | -6.10% |
| Hong Kong | -6.40% |
| Canada | -7.20% |
| Australia | -7.60% |
| France | -7.80% |
| India | -8.20% |
| China | -9.20% |
| Germany | -9.40% |
| Brazil | -13.30% |
If you pickup your average financial publication or listen to a talking head, they almost always beat the drum of increasing international exposure. The conclusion almost always has fundamental underpinnings based on the belief that these smaller countries will grow at a higher rate than the United States.
The part that is not conveyed to the average investor is that these countries can also suffer deep recessions and depressions with much greater velocity than in the United States.
The average investor needs to know that the world economies are highly correlated most of the time. I think many novice investors have the unreasonable expectation that they can buy a/an (insert non-US ETF here) ETF and have a legitimate shot of generating a positive return even if the US market goes down. The reality is that the world markets will generally move together.
I think a better way to view foreign ETFs is simply as a levered bet on the S&P 500. In boom times, you’ll get a lot more bang for your buck investing in countries that have potential for high growth (think Brazil, India, China Russia). When the world economy is weak, expect that leverage to work against you in a big way.
Sophisticated traders already know this. But for the newbie investor/trader, I want people to know what they are buying when they go international.