Global Stock Markets Performance 2014

Global Stock Markets

The global stock markets as a whole have been enjoying bullish years on the back of Central Bank monetary expansion. Since September of this year, however, stock markets in aggregate have been weakening and were unable to push to new highs. These could be regarded as signs of topping out and may portend more difficulty ahead for national markets. Although, divergence is a theme that is likely to embolden in the new financial year.

S&P Global 1200: + 3.49% {source}

The same chart pattern can be noted on the MSCI World Index, which failed to push higher since July 2014. Initials lows and subsequent highs in the beginning 2015 will be very indicative of stock market health moving forward.

MSCI World Index {source}

Bloomberg EMEA World: -8.49% {source}

The Bloomberg EMEA-World Index even has shown a stronger bearish  inclination and could be further down the formation of a top. The primary bullish trend is still formally in place (-8.49%), but bare in mind that a decline of 20% or more is generally considered bear market territory.

Outperforming Stockmarket 

Venezuela

For the second year in a row, the absolute king of the stock markets was found in Latin America. While Venezuela gained a whopping 447% in 2013, Argentina 'only' had to settle for a +61.24% gain on the Merval Index in 2014.

Argentina Merval Index: +61.24% {source}

To harmonise data, realised gains in Argentina should be adjusted for high inflation rates. Although their actual inflation rate is clouded in obscurity (and under suspicion of manipulation), a yearly inflation rate of at least 10% should be discounted.

China - Shanghai

Second in place is China, whose Shanghai Stock Exchange (Shanghai Composite) appreciated an elegant 56.8% over the course of 2014. To be more precise, in the latter part (quarter) of the year, as China profited from better connected stock exchanges, an influx of local retail investors and a fresh bout of monetary stimulus.

SSE Index (Shanghai Composite): +56.8% {source}

Underperforming Stock Market

The Russian Federation

The biggest losses can be attributed to the most dogged down nation of 2014, Russia. Their RTS-index depreciated 43.04% over the course of the year. Russia's liquidity has come under a lot of stress as a perfect storm swept over key markets; The crash of the Rubble (-60.3% against the SDR), liquidity crunch in the financial sector and fiscal setbacks due to surpressed oil revenues.

Russia RTS Index: -43.04% {source}

The United States

S&P 500 Relative Performance {source}

S&P 500

In spite of frustrated bears and the end of QE, the (large cap) US stock markets kept marching on convincingly (+13.92%), albeit slower than in 2013 (+25.51%). The relative strength of the US economy allowed for a sustained bullish stance among investors, in favour of US equities and the Dollar.

Nasdaq Composite

US technology stocks even have shown better performance than the broad market. The Nasdaq Composite Index has gained  +14.39% and might challlenge the record from March 2000 (5048.62 index points) in 2015.

Nasdaq Composite: +14.39% {source}

Russel 2000

The midcap index (Russel 2000) had been initially rangebound and appeared weakening. In the closing month of the year, the index finally pushed to fresh highs and ended on a positive note (+4.25%).  

Russel 2000: +4.25% {source}

Volatility

Also in 2014, volatility had been suppressed for the greater part, except in the (historically volatile) October when the fear gauge peaked around 26. As the mild panic dispersed, bulls saw a window of oppertunity to allow fresh new highs and a redampening of volatility. On average, volatility has been slowly edging down since July 2012 and has averaged in the lower 14-range over the year.

Multi-Year VIX (volatility) Index | 50 Week Moving Average {source}

Dow Theory

Dow Transportation Average | Dow Industrial Average {source}

The classic Dow Theory regards the Dow Jones Transportation Average important confirmator for broad market performance. New highs within the Dow Jones Industrial Average should be confirmed by new highs in the Transportation Index.This is based on the idea that transportation companies' (like railroads, shipping companies and air freight carriers) performance are an accurate reflection of business conditions, since such companies connect manufacturers of goods to their customers. New highs in the Industrial Average, have been consistently confirmed by new highs in the Transportation Index. In this sense, the broad US stock has continued to confirm the bullish trend.

Historical Chart S&P 500 {source}

Japan

Relative Gains Nikkei 225 {source}

Japan had a very decent year (+7.9%), but also considerably cooled down compared to the massive gains realised in 2013 (+52.17%). Japan has been fighting an uphill battle against a pervasive economic contraction and the effects of deflation. In recent years it has been expanding its monetary base aggressively to stimulate the economy and depreciate the Yuan. Although the curative effects of the monetary medicine seems to be waning off, Japan has pledged to increase the dosage in 2015 along with structural reforms.


If Japan continues to push onward, the Nikkei Index is bound to meet considerable overhead resistance at its 2007 peak at 18,252 Index Points.

Historical Resistance Nikkei 225 {source}

Europe

European stock markets have shown an overall meagre performance (EuroStoxx 50 +0.88%). 'We are not Japan', has been echoing from Brussels and Frankfurt, although some commentators beg to differ.  The European mainland has shown questionable economic progress and political (in)action has handicapped the continent. With the absence of political reforms and weak underlying economic recovery, all eyes were directed at the ECB for actual financial catalysts. In this sense, Mr. Draghi has come surprisingly far with reiterations of his 'all that is necessary'-statement. With the use of narrative and interest rate reductions, the appreciating Euro reversed course and Government Bond yields have been drifting lower.

European exchanges have been showing a lot of action, but failed to get actual work done. The markets have been struggling to extend the upward trend and (in aggregate) has shown lower highs and lower lows since september. A lot of disparity exists between European markets, which makes establishing a single European trend difficult. Nevertheless, the 'singular' trend has been weakening and we should be on the lookout for trend (dis)continuations in stronger European markets (like Bel20, DAX, AEX).

Euro Stoxx 50: +0.88% | Belgium: +12.06% | The Netherlands: +5.15% |
Spain: +4.62% | France: -0.86% | Germany: -1.15% (pure price index) {source}

Commodities

S&P GSCI Commodity Index

Relative Performance S&P GSCI Commodity Index {source}

For commodities, 2015 has been a terrible year (-33.12%). In hindsight, the precious metals crash in 2013 could have been interpreted as a prelude to widespread declines in commodities, which most profoundly hit the energy sector. This grand theme is famously dubbed as the end of the commodities super cycle; sustained pressure on natural resources pricing due to supply side expansions, efficiency and tepid economic growth projections. This premise has some notable exceptions. 

US Dollar Index

The US Dollar has been strengthening vigorously in the second half of 2014, which was widely considered a catalyzer for the commodities downturn. This interlocking exists simply because many centrally traded commodities are quoted (thus traded) against the US Dollar.

US Dollar Index: +12.7% | GSCI Commodity Index: -33.1% {source}

Coffee and Live Stock

Coffee and livestock (+14.46%) were the outperformers in the commodities sector. Coffee has regained traction (+53.53%) after years of relative underperformance. Appreciations were mainly due to extreme drought in Brazil, world's largest coffee exporter. Impending shortages were quickly offset by record harvests in India, which kept some constrainment on prices.

GSCI Commodity Index: -33.82% | GSCI Live Stock Index: +14.46% | GSCI Coffee Index: +53.53 {source}

Metals

The metals as a whole also lost considerable ground (-6.24%) in 2014. Big losses were attributed to the precious metals (-5.0%) and industrial metals (-6.74%). Price developments in the industrial metals family has two faces, as nickle was the best performing metal (+6.65%) and aluminum did okay (+2.71%). However the widely reckonised probe for industrial and construction health, (Dr.) Copper, lost -14.36% over the year.

GSCI All Metals: -6.24% | Industrial Metals: -6.74% | Precious Metals: -5.0% | Nickle: +6.65% | Aluminum: +2.71% | Copper: -14.36% {source}

Uranium

Specialty metals fared reasonably well, with special regard for the rebound of Uranium (+15.7% from nov '13 - nov '14). This raw mineral, which is used for nuclear power generation, has seen invigorated attention since the Japanese approval for resumption of nuclear operations.

Multi-Year Price Development U3O8 (Uranium) {source}

Precious Metals

For the second year, the precious metals have met considerable headwinds. While 2014 started reasonably well for this metals group, with palladium as clear outperformer, the commodities slump that started in July ultimately dragged all precious metals down. This downturn led to a search for new bottoms and a difficult recovery for the precious metals. Platinum has underperformed (-12.32%) while Palladium fared reasonably well due to initial bullish momentum (+12.02%). Gold enjoyed fresh euphoria as the year started, but later had all market participants speculating about the formation of a new bottom. Gold ended relatively neutral (-2.31%), but it's silver sibling had a disastrous year (-21.20%). 

Gold: -2.31% | Silver: -21.20% | Platinum: -12.32% | Palladium: +12.02% {source}

Gold & Silver Producers

Although some of the depreciations in bullion could be contained, miners in the metals sector couldn't escape a horrific year (-27.64%). The major miners in gold (-16.57%) contained the damage the best, whereas the juniors were butchered (-26.82%). The silver miners exhibited an inverse relationship, as juniors did a somewhat better job (-16.46%) than their mature peers (-20.31%). 

S&P Metals & Mining: -27.64% | ISE Junior Silver: -16.46% | Market Vectors Junior Gold Miners Index: -26.82% | Solactive Global Silver Miners: -20.31% | NYSE ARCA Gold Miners Index: -16.57% {source}    
ETFs are used as proxy for this chart and may exhibit tracking errors.

Energy

Most attention and disruption was attributed to declines in the energy sector (-46.06%). Losses were made across the board from gasoline (-47.60%) to US natural gas (-33.85%) and of course crude oil. The spread between West Texas Intermediate (WTI) and Brent Crude oil has tightened over the course of the year (from $12.10 to $3.62). The more US oriented WTI oil benchmark dropped -46.89%, which was surpassed by the a -47.95% drop in Brent.

GSCI Energy: -46.06 | GSCI Natural Gas: -33.85% | GSCI Brent Crude: -47.95% | GSCI (WTI) Crude: -46.89% {source}

NOTE

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This document is written for educational purposes only and does not constitute investment advice.
Actual performances and percentages may differ marginally due to the use of mixed data sources, rounding errors and the recency of data while writing this post (week 52-2014).

For a clean performance overview, pure price indexes are regarded (in contrast to Total Return Indexes) whenever possible, to isolate capital gains and losses while disregarding (dividend) reinvestments.

The effect of inflation and currency exchange rates (FX) on local markets can greatly influence relative performance.

My Personal ETF Preferences

This article brings a personal summary of preferred ETFs.
The ETF toolset allows for tactical application of specific ETFs based on market expectations. Products, parameters and figures provided are primarily intended as mental note and no claim is made to the accuracy of data.

Using Exchange Traded Funds

As cycles and market oppertunities emerge, an ETF can be a great instrument to trade specific regions of the market. The Exchange Traded Fund (ETF) is an open-ended fund that tracks the performance of an index, commodity or any basket of assets and which trades like a stock. In this sense, ETFs can be used for oppertunity hunting, quick diversification and for hedging purposes. Be mindfull though, that not all ETFs are created even and specific types may suite a specific purposes. If you are relatively new to ETFs, or you want to refresh your knowledge, please follow one of these two links.  As goes with any investment, the prospectus always needs close examination before any capital is commited.

My Favorite ETF's

In the table below, an overview is given of my preferred ETFs, categorised by market and oppertunity (usage). Before making investments, always check the most actual conditions of the fund.

Underlying Asset	Exposure	Usage	Name	Ticker Code	Notes
S&P 500	1x long	Longer bi-directional moves	SPDR S&P 500	SPY	Higher expense ratio (0.09), solid tracking spread (0.01%).
	1x long	Shorter bi-directional moves	Vanguard S&P 500	VOO	Lower expense ratio (0.05), slightly higher spread (~0.02%)
	1x long	Longer-term bull market	Guggenheim S&P 500 Pure Growth	RPG	More volatile tracking of growth stocks at a higher expense ratio (0.35%)
	2x short	Short-term bear market	ProShares Ultrashort S&P 500	SDS	Tight geared tracking at a moderate expense ratio (0.90%)
	2x long	Short-term bull market	ProShares Ultra S&P 500	SSO	Geared tracking in a very liquid market at a moderate expense ratio (0.90%)
	3x long	Short-term bull market	Direxion Daily S&P 500	SPXL	Very tight (levered) tracking at an medium expense ratio (0.99%)
Total US Market Exposure	1x long	Long-term bi-directional moves	Total Stock Market Speeder	VTI	Very low expense ratio (0.05) and an excellent spread (0.01%). Tracks Dow Jones U.S. Total Stock Market Index very accurately on a longer term base.
US Large Caps (broad market)	1x long	Medium to long-term bull market	Vanguard Mega Cap	MGC	Reasonable expense ratio (0.12%) at a very decent spread(avg) (0.04)
Dow-Jones - US Large Caps (Dow 30)	2x short	Short-term bearish moves	ProShares UltraShort Dow 30	DXD	High expense ratio (0.90%) and very tight tracking on daily base. Mind acute effects of compounding at high volatility resulting in quick decay.
Nasdaq-100	1x long	Medium-term bi-directional moves	Total Return Nasdaq-100	QQQ	Reasonable expense ratio (0.20%) with a tight spread(avg) (0.01%). This fund is only non-financial and largely overweight Apple.
	1x long	Speculative tech growth.	First Trust NASDAQ-100 Equal Weighted	QQQEW	Quite high expense ratio (0.60%) with acceptable spread(avg) (0.08%). This fund equally weights Nasdaq-100 stocks and tilts to tech growth-stocks.
Volatility (VIX)	1x long	Short-term bull moves (bear markets)	iPath S&P 500 VIX Short-Term Futures ETN	VXX of VXZ	VERY DANGEROUS INSTRUMENTS, UNLESS SHORT. RELENTLESS COMPOUNDING LEADS TO MASSIVE DECAY IN BEARISH ENVIRONMENT. NEVER TRADE LONGER THAN 1 MONTH
	1x short	Mid-term bear moves (bull markets)	VelocityShares Daily Inverse VIX Short Term ETN	XIV	Very high expense ratio (1.35%) and reasonable spread (0.03%) for short term. Use this asset at best in a mid-term downward market. BEWARE RISKS
WTI Crude Oil	1x long	medium term bi-directional moves	United States Oil	USO	Relatively low expense ratio (0.70%), reasonable tracking methodology. BEWARE VOLATILITY AND FUTURES CURVES
Brent Crude Oil	1x long	Medium term bi-directional moves	United States Brent Oil	BNO	Higher expense ratio (0.92%) at a reasonable spread(60) (0.09%)
GOLD	1x long (london fix)	Commodities (precious metals)	SPDR Gold	GLD	Decent expense ratio (0.40%) for a tight spread (60) (0.01%). Largest and most liquid gold tracker.
Juniors Miners	1x long	Medium-/long-term bull markets	Market Vectors Junior Gold Miners	GDXJ	High expense ratio (0.55%) and reasonable spread (0.12%) for a high profit potential in the (risky) Juniors gold miners complex.
	1x long	Medium Term bull markets	Market Vectors Gold Miners	GDX	High expense ratio (0.52%) with reasonable spread (0.03%) short-term, but underperforms to HUI long-term.
Large-Cap Miners	3x short (HUI)	Short-term bear markets	Direxion Daily Gold Miners Bear 3X	DUST	High expense ratio (1.01%) for an agressive bet against gold miners on short term.
Silver	2x long (london fix)	Short-term bull markets	ProShares Ultra Silver	AGQ	Very high expense ratio (1.98%) and tight performance even when holding longer term. Most effective as short-term trading instrument.
	2x short	Short-term bear markets	ProShares UltraShort Silver	ZSL	Very high expense ratio (2.02%)  but tight leveraged short-term tracking.
Financials (US)	1x long (SP500 financials)	Long-term bi-directional moves	Financial Select SPDR	XLF	Reasonable expense ratio (0.18%) and tight tracking over the long haul.
Utilities (US) {nutsbedrijven}	1x long (MSCI utiltities)	Medium-/long-term bi-directional moves	Vanguard Utilities	VPU	Reasonable expense ratio (0.22%) and solid tracking over the long term.
Consumer Staples (US)  {consumptie + huishoudelijk}	1x long	Medium-/long-term bi-directional moves	Vanguard Consumer Staples	VDC	Relatively low expense ratio (0.14%) and good tracking over the long term
Health Care (US)	1x long (MSCI Health care)	Medium-/long-term bi-directional moves	Vanguard Health Care	VHT	Relatively low expense ratio (0.14%) and good tracking over the long term
Biotechnology (US - Nasdaq)	2x long	Short-/medium-term bull markets	ProShares Ultra NASDAQ Biotech	BIB	Relatively high expense ratio (0.95%) and trading costs due to its spreads. Good choice for bullish speculations.
	1x long	Medium-/long-term bi-directional moves	Guggenheim S&P Equal Weight Technology	RYT	Acceptable expense ratio (0.40%) for a reasonable tracking and equal weighting of S&P 500 tech companies.
Consumer Discretionary (US) {duurzame consumptiegoederen}	1x long	Short-/medium-term bi-directional moves	Consumer Discretionary Select SPDR	XLY	Attractive expense ratio (0.18%) but lacks tracking over a longer term. Liquidity and reasonable spread makes attractive trading tool for general market moves.
Energy (US)	1x long (MSCI Energy)		Vanguard Energy	VDE	Low expense ratio (0.14%), broad exposure and solid tracking spread(365) (0.07%). Second in market to a more liquid, but more S&P 500 inclined XLE.
Uranium	1x long	Medium-/long-term bi-directional moves	Market Vectors Uranium + Nuclear Energy	NLR	Reasonably high expense ratio (0.60%) for which it outperformed its peers. Reasonably liquid and relatively broad diversification.
Alternative Energy (Global)	1x long	medium-/long-term bi-directional moves	Market Vectors Global Alternative Energy	GEX	Reasonably high expense ratio (0.62%) and outperformance in bull-markets. Acceptable liquidity, but risks a high(er) spread.
Platinum	1x long	Medium-term bi-directional moves	ETFS Physical Platinum	PPLT	Relatively high expense ratio (o.60%), though lowest in segment. Acceptable tracking spread(12 Mo) (median -0.57%) and good liquidity.
Palladium	1x long	Medium-/long-term bi-directional moves	ETFS Physical Palladium	PALL	Only focussed physical palladium tracker, at relatively high expense ratio (0.60). Acceptable tracking spread (median -0.68%) and good liquidity.

The information is largely sourced from ETF.com and was last updated on Februari 2014. 

Short-term	Medium Term	Long-term
< 3 weeks	< 6 months	> 6 months

Some ETF Essentials

1) Levered Funds generally increase spreads (underperform) in volatile markets, but may outperform when volatility is low.
2) Commodity ETFs (based on futures and/or derrivatives) may underperform when in contango (futures-curve edges up) and outperform when in backwardation (futures-curve edging down). To check futures curves, you can check the latest contango report on ETF.com or parse data manually from the CME Group.
3) Synthetic (replicated) ETFs are constructed with (complex) derrivative structures, often opaque to the retail investor. Be mindfull of related risks and possible deviations in performance and spreads that result. You might want to prefer physical replicated ETFs.
4) ALWAYS be mindfull of volatility. Higher volatility increases likelyhood of underperformance.
5) Rebalancing / Compounding can be a b*tch! If you are using ETF's for the long run, make comparison charts yourself to get a sense of tracking variability (check this chart to see how a long VIX position using the VXX could explode in your face - even if you are right).
6) There is a difference between ETFs and ETNs (Exchange Traded Notes). In general, ETNs deliver better tracking performance, but bring substantial more (credit) risk. Check this article to learn more.

 

Using ETF's

When you are interested in wide exposure for an accessible price, then an ETF is an excellent choice. Before you make any commitments to sectors or markets, make sure you have selected the best value-for-money ETF that meets your strategy. You may can compare any ETF on www.etf.com and you may find additional information on www.morningstar.com. Before you make your first ETF investment, be sure to read these tips first.


Prosperous Investing,
Steven