Yesterday, we looked at how the developed markets were faring by industry group and by region. It was clear that DM Asia was the place for equity investors to be YTD. Today, we want to slice the return data a little differently and see how equity performance shakes out by country. The first key takeaway is that Japan is clearly driving DM Asia performance. And if we want to look at both DM and EM, Japan and South Korea are the only two countries with positive performance YTD. Both are up a healthy 9% (again this is equal-weighted, USD basis, return data)
DM and EM Asia Performance By Country
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The next main takeaway is 2015 is a good example of why US investors (and for that matter all investors) should do their best to avoid home country bias. Home country bias is a behavioral effect where investors have a disproportionate amount of their portfolio invested in their home country stocks. Because the US stock market is the largest market in the world, US investors actually tend to have less of a home country bias than their international peers. However, home country bias still is very apparent for US investors as well. As this Vanguard study shows, US investors were overweight the US by about 29% in their portfolios in 2010. So far in 2015, the US is 20th best performing country out of the 46 that we track. A US only investor is down about 3%,while 33%-33%-33% portfolio in the US, Japan and UK, for example, is up 2.34%.
The last thing to note about performance so far this year is EM Americas have taken the most abuse. While a lot of focus has been on Brazil and the weakening Real, and rightfully so, one shouldn’t over look the fact that all five countries in EM Americas are down at least 10%. So far, no EM Americas country has been able to escape the sell off. At least in EM EMEA or EM Asia, you have a few bright spots such as Hungary or South Korea.
EM Americas Performance By County
EM EMEA Performance By County
EM Asia Performance By County
Looking forward, average valuations still seem rich around most of the world (its worth keeping in mind that some of these average valuation levels, especially for smaller country indexes like Denmark, can have a definite skew higher due to outliers). Only two countries, Colombia (0.8x) and Greece (0.6x) are trading at below book value and 18 countries are trading at least 3x book value. The average price to book value in the US is a steep 6.2x. Similarly, only 12 countries are trading below 20x earnings and surprisingly zero countries are trading below 10x earnings (nope, note even Greece). On a price to sales basis, only Greece is trading below 1x sales and 14 countries overall are trading below 2x sales. The United States is currently trading at 3.8x sales.