Value oriented overseas indexes continue to shine

Key points:

• On a YTD basis, an overwhelming number of foreign markets are outperforming the S&P 500
• Countries with value-oriented industries like energy, mining, and banking show strong performance
• Recent price momentum in Brazil suggests it could pause in the near term

Foreign markets are outperforming the S&P 500 in the near term

In my last update on 1/20/22, 86% of the country ETFs that I track outperformed the S&P 500 on a YTD basis. If we fast forward one month later, the number of countries exceeding the S&P 500 still stands at 86%. Brazil and South Africa show notable improvement.

Overseas indexes with a solid trend score lean toward value-oriented industries

Suppose I sort the Country table by the relative trend score column. In that case, it shows solid scores for several countries in the Middle East and South America. Countries with positive scores have a heavy index weighting geared toward value-oriented industries like energy, mining, and banking. The relative trend change column shows 19 countries with an improving score versus only 2 with a deteriorating one over the trailing 5-day period. And, relative highs continue to outpace relative lows.  

Brazil is showing a persistent short-term trend recovery

The Brazil ETF (EWZ) has now closed above its 10-day moving average for 27 consecutive; an occurrence achieved only 10 other times since 2003. In a recent note titled Brazilian stocks on cusp of long-term recovery, Jason shared a bullish long-term outlook for the country. However, the study also suggested that one should be mindful of a pullback in the near term. This moving average study provides further evidence that a short-term pause is likely, with 10 out of 10 cases showing a lower close at some point over the next 2 months. 

The number of countries with a positive relative trend score versus the S&P 500 continues to improve, with a 30% increase from the lows in December 2021.

The percentage of countries with a relative trend score of -10 shows a significant reversal from the highest level since October 2020. 

More Country ETFs are outperforming the S&P 500 on a medium-term basis

The percentage of country ETFs outperforming the S&P 500 on a rolling 3-month basis has climbed to the highest level in more than a year.

Domestic industries confirm the value-oriented strength in foreign ETFs

Value-oriented industries like energy, banking, and mining show strong absolute and relative performance. On Wednesday, the Metals and Mining ETF (XME) registered a new 252-day high.

A recent signal shows outperformance versus the S&P 500

In a recent note, I shared a trading signal that suggested the MSCI ACWI ex USA index could outperform the S&P 500 on a medium-term basis. As of 2/17/22, the global benchmark outperforms the S&P 500 by almost 400 basis points.

What the research tells us...

Overseas indexes continue to outperform the S&P 500 on a YTD basis. The country ETFs exhibiting the strongest absolute and relative trends maintain heavier weightings toward value-oriented industries like energy, banking, and mining. The Brazilian ETF (EWZ) shows strong price momentum, which means it could pause in the near term.