What Countries are Hot: What should a momentum investor be looking at now?

In a previous whitepaper, we looked at using Momentum as a factor when investing across countries, and found it to be effective in generating outperformance vs. the benchmark. The full text can be found here.

As investors who are biased towards factor tilts, we thought it would be interesting to look at the relative performance of the 32 countries in our universe based on 3 basic criteria: Trailing 30 Day Return, Trailing 90 Day Return and Trailing 12 months Minus the Recent 30 Day Return. All returns are measured in Local Currency of the respective index.

The table below includes rankings of each country based on each individual factor, as well as a composite rank that is the average of the 3 factor ranks. In addition, just for the sake of completeness, we included the actual measure of trailing 90 Day Return so that readers could see how recent political events are affecting relative returns. This data is as of 8/4/14, and as such, reflects the increasing divergence of returns at a country level.

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Over the past 90 days, Egypt is the best performing index, up 10.78%, and Portugal is the worst performing index, down -20.91%. That is a maximum/minimum range of 31.7%. Based on the composite rank, Egypt is the hottest market in the world, followed by India, Turkey, South Africa, Brazil and China. The worst performing markets are Germany, Russia, the Netherlands, Portugal and Austria. Turkey, China and Hong Kong have an interesting profile, with very strong returns in the last 90 days, but terrible longer-term performance. Greece, Italy and Germany show the exact opposite, with very strong longer-term performance, but very poor near-term returns. The US is now in the middle of the pack, after a 5 year run at the top of the performance table. The majority of the countries with high ranks are part of the emerging markets. That said, we also see countries like Russia, Chile, Poland, and Greece diverging significantly to the downside.

Currently, momentum investors should be looking at single-country ETFs that invest in Egypt (EGPT), India (INDY), Turkey (TUR), South Africa (EZA), and China (MCHI).

 

Disclosures: This article was compiled by David Garff, a Portfolio Manager at Accuvest Global Advisors. This article is strictly informational and should be used for research use only. It should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Charts and information are sourced from Bloomberg, unless otherwise noted. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. You should seek advice from your financial adviser before making investment decisions. Investment risks are borne solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request.

 

May 2014 Country Rankings

This month, Spain and Italy dropped slightly in the model and were replaced by Germany in the top six. However, China and the United States maintained their positions at the top of the model.

This year, value factors, which have been the best driver of performance over the last 12 months, are the only factor group to make a positive contribution.The momentum factors are continuing to show signs of mean reversion across countries, while select emerging markets are quickly moving up the rankings due to accelerating momentum and improving fundamentals.

Notable Moves to the Upside

  • Turkey… climbed 18 spots to 10th overall. Turkey has been the best performing market over the last 3 months, up 20.2%. Fundamentals are also improving across a variety of factors.
  • Peru… moved up 11 spots from 25th to 14th overall. Similar to Turkey, Peru is showing improving momentum and fundamentals. Valuation and risk remains higher than average.

Notable Moves to the Downside

  • Russia… continues to drop, despite having the cheapest valuation in the model. They are now ranked 21st overall and have the worst momentum and 2nd highest risk in the entire model.
  • Japan… fell 9 spots and is now ranked 28th in the model. Momentum has been the biggest drag on Japan, which has been the 2nd worst performing country over the last 3 months. They are down -5.0% during that period.

For more on countries, strategies, and movement in the model, see our full Portfolio Notes:

PDF imageMay Portfolio Notes

Top 6 Countries for May 2014

 

June 2013 Country Rankings

This month, Turkey and Japan remain our favored markets, despite heavy volatility during the closing weeks of May. Russia does not see a place in this month’s model, as Germany and South Korea move in on its standing.

Notable Moves to the Upside

  • Germany moved up 3 spots from 6th to 3rd overall.  They offer the most balanced profile of any country in the top part of the model.  Improving momentum and risk should help Germany be a mainstay for months to come.
  • Italy moved up 5 spots from 26th to 21st overall.  While we are still underweight Italy across our strategies, they are showing improving fundamentals, momentum, and valuations.

Notable Moves to the Downside

  • Australia fell 11 spots from 14th to 25th overall.  They have one of the worst fundamental makeups and have shown rapidly decelerating momentum.  Australia has moved from a neutral weight to an underweight in our model.
  • Russiafell 5 spots from 3rd to 8th overall.  In addition to poor momentum, Russia’s fundamentals and risk profiles have started deteriorating, which helped push Russia out of the top 5.

PDF imageCountry Portfolio Notes June 2013

 

Highest Ranked June Countries