Global developed stocks, as measured by the MSCI World IMI Index, reached a new all-time high in November and are up more than 20% year to date—putting them on track to cap off one of their best years since 2013.1 But this rising global developed stock market tide has not lifted all equity boats.
The market’s run is being driven by a power surge from US equities, which have hit multiple all-time highs and outperformed non-US equities by more than 7% this year.2 Because US equities make up 61% of global developed stock market capitalization,3 leadership of this global stock market performance is narrow and heavily US-focused.
This narrowness is amplified when we broaden this market performance analysis to include emerging markets (“EM”) equities. When EM stocks are added, and global market performance is measured using the MSCI ACWI IMI Index instead of the MSCI World IMI Index, it shows that global stocks haven’t reached an all-time high in 485 days.
Aging all-time stock market highs
Now, 485 days since reaching an all-time high may sound like a long time. But for many non-US based markets, their last all-time highs occurred thousands—not hundreds—of days ago. As shown below, many of these markets are double-digit percentage points away from their most recent all-time highs. These downbeat returns are one reason why we consistently see a home country bias in our clients’ portfolios when conducting portfolio reviews.
This divergence in stock market returns, however, means non-US markets are more attractive than the US from a fundamental valuation perspective, perhaps indicating a 2020 contrarian investment opportunity. But this divergence existed at the start of 2019, and it did not sway investors to abandon their home county bias. While these underperforming regions may also offer potential portfolio diversification benefits, investors have not been able to look past the sizable geopolitical risk impairing fundamental and economic growth overseas and in EM.