With the first half of 2014 behind us, it’s worth taking a looking at the top-performing global stock markets of 2014.
Over the past few years, U.S. investors have enjoyed the “exorbitant privilege” of investing in a stock market that ranked #1 in 2011 and #5 in 2013 among all its global rivals.
And you can’t blame most investors for thinking:
“Why invest in far-off global stock markets when I can do better sticking close to home?"
However, 2014 is turning out differently.
Despite the U.S. market hitting record highs, it ranks a mere #26 among the 46 global stock markets I follow on a daily basis at my firm Global Guru Capital.
Note that these are all stock markets you can actually invest in through exchange-traded funds (ETFs).
Why is this important?
The fact that Ukraine’s stock exchange is up 45.40% this year does you little good if you can’t invest in it.
With that, here are 2014’s top five global stock markets that you can invest in at the click of a mouse.
1. WisdomTree India Earnings (EPI) -- up 34.05%
Arthur Koestler’s 1960 classic book, “The Lotus and the Robot,” unflatteringly described his experience of arriving in Bombay (Mumbai) as “the sensation that a wet, smelly diaper was being wrapped around my head by some abominable joker.”
Global investor Jim Rogers refuses to invest a dime into India, saying it’s “a wonderful country, but a terrible investment.”
Yet, India is becoming the global investment story of 2014, and its recent rise has propelled India into the ranks of the 10 largest global stock markets in the world.
The key behind India’s recent strong run is the election of Narendra Modi as India’s next prime minister. Hailed as the Ronald Reagan of India, Modi’s mantra has always been “less government, more governance.” India is already expected to unveil bold reforms in its budget this week in a bid to turn around an economy, whose growth has lagged China’s over the past five years.
EPI vs. S and P 500
2.Market Vectors Egypt (EGPT) -- up 24.81%
The Rothchilds family famously advised: “It’s best to invest when there is blood in the streets.”
By that standard, Egypt is the place to be.
The country’s economy has been racked by political unrest ever since the “Arab Spring” ousted Egyptian President Hosni Mubarak three years ago.
But even as Egypt disappears from the headlines, the news is improving. Just last week, Egypt eased restrictions imposed on the stock exchange after a 2011 popular uprising. That reflects increased confidence in the country's political stability since the inauguration of President Abdel Fattah al-Sisi in early June. Sisi was elected president last month, less than a year after Islamist President Mohamed Mursi was forced to abdicate after mass protests.
Thanks to its newfound stability, MSCI is no longer considering downgrading Egypt from an "emerging market" to a "frontier market" -- a move that would potentially have led to the withdrawal of millions of dollars from Eqypt’s stock market.
EGPT vs. S and P 500
3. iShares MSCI Denmark (EDEN) -- up 23.26%
Francis Fukuyama, the author of the classic “The End of History,” once told me that the eternal question among political scientists around the world is: “Why can’t we all be more like Denmark?”
That explains the curious ticker symbol -- EDEN -- for the Danish ETF.
Investors in Denmark may be coming around to Fukuyama’s view, given the performance of the iShares MSCI Denmark Capped (EDEN), which has soared 23.26% this year. One reason for EDEN’s impressive returns is its 36% exposure to the healthcare sector. The ETF’s largest holding, Danish pharmaceuticals giant Novo Nordisk (NVO), accounts for over 24% of the fund’s weight. And new non-residential activity in Denmark is forecast to grow by 8.6% a year on average to 2016 on the back of a new wave of hospital construction.
EDEN also benefits from Denmark pegging its krone to the euro, which provides the country’s currency with unique stability.
EDEN vs. S and P 500
4. iShares MSCI Philippines Investable Market Index (EPHE) -- 19.91%
With its reputation as the “sick man of Asia,” the Philippines never had the cache of its higher-profile “Asian Tiger” rivals -- Hong Kong, Singapore, Taiwan or South Korea. And with a population of only 95 million, the Philippines does not have the demographic heft of, say, nearby Indonesia.
But what the Philippines does have is economic growth, with the government expecting the economy to expand 6.5% to 7.5% this year, and that may put it ahead of China in the economic growth stakes. The economy is already just coming off of its strongest two-year expansion since the 1950s.
The Philippines’ greatest coup came in May when S&P upgraded its debt to investment grade. That followed a similar move by Moody’s Investors Service in October. The S&P upgrade was critical because some institutional funds require at least two investment-grade ratings before investing in the country.
EPHE vs. S and P 500
5. Market Vectors Indonesia Index ETF (IDX) -- up 17.83%
Indonesia’s stock market index rose to a one-year high yesterday on speculation that market favorite Joko Widodo will win tomorrow’s presidential election. Widodo has said that he expects the country’s growth rate to hit 7% with the help of his proposed economic reforms.
As the world’s fourth-largest country, Indonesia boasts a young-and-growing population of 247 million. In addition, tax, customs and capital market reforms introduced in 2004 by President Yudhoyono did much to change Indonesia’s economic landscape. The government now has a stated goal of adding another “I” to the “BRIC” (Brazil, Russia, India and China) acronym.
On the one hand, Indonesia has a lot going for it. Its growing middle class of 130 million is expected to double by 2020. On the other, a shaky legal system, rampant corruption and inadequate infrastructure, combined with the ever-present threat of terrorism, still pose a threat to long-term growth.
IDX vs. S and P 500
NOTE: Global Guru Capital is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Financial Publications.
In case you missed it, I encourage you to read my e-letter column from last week about how a change in perspective can lead to profitable insights. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.
Nicholas Vardy, CFA
Editor, The Global Guru
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