by Eric Bush, CFA, Gavekal Capital
The US has outperformed the MSCI World Index by over 26% since the 3/9/2009 low while the rest of the developed world has dramatically underperformed. Europe has underperformed by nearly 29% with Germany underperforming by over 26%. Asia has underperformed by nearly 27% and Japan has under performed by nearly 27%.
This lack of participation in the bull market can be clearly seen when we look at the percentage of stocks in each region/country that are making new 65-day highs. Even in the US, the bull market has certainly lost quite a bit of thrust since the summer of 2013. 35% tends to be an important level for the percentage of stocks making new highs. When that many stocks are making new highs and then consistently make new 65-day highs again and again like in 2009-2013, that is a sign that the bull market is broad and has a lot of momentum behind it. In the chart below, we can see that during the 2009-2013 period this was happening quite often in the US. However, there has been a noticeable decline in the percentage of stocks making new highs over the past three and half years.
In Europe, the lack of participation is even more pronounced. The start of the bull market wasn’t quite as strong for European equities but there were still plenty of periods where over half of European stocks were making new 65-day highs. This has not happen since 2012, however, and as the chart below clearly shows European equity markets have increasingly lost its thrust over the past three and a half years.
In Asia, we haven’t really seen the broad participation we would have liked to see throughout this entire bull market. The GKCI DM Asia Index has gained 86% since 3/9/2009. However, 63% of that gain occurred in the first six months of the rally. Asian equities have only gained about 23% since the fall of 2009.
The outsized gains in the US compared to the rest of the developed world has unsurprisingly led to a wide gap in relative valuations. GKCI United States is trading at a lofty 2.3x intangible-adjusted book value. GKCI DM EMEA is trading at just 1.34x intangible-adjusted book value and GKCI DM Asia is trading even lower at 1.12x intangible-adjusted book value. In other words, the US is trading at a 71% premium to Europe and a 105% premium to Asia.
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