BOSTON, MA – 12/22/20 – Vitaly Veksler, CEO and Portfolio Manager at Beyond Borders Investment Strategies, LLC (BBIS) published another update on the performance of global equity markets titled “December 2020: The Race Among Countries' Stock Markets May Go Down to the Wire”. Below is the text of the report. 

To read the report in PDF format, please Click Here

As I wrote in a LinkedIn post about Beyond Borders Investment Strategies’ previous report titled “December 2020: Major Developments at Both Ends of the Table”, “I love sports and global investing. When I talk to my clients, my colleagues, and my kids (who do not know all intricacies of finance but love sports), I often describe the annual competition among stock markets of different countries as a multistage bicycle race similar to the Tour de France. There are 50 competitors: MSCI stock indices of 48 countries that are represented by at least one single-country equity ETF plus MSCI USA and S&P 500 indices. There are twelve stages (months) and 52 intermediate sprints (weeks).” The biggest prize is to win the overall annual competition by accumulating the highest total return (price accumulation plus dividends) by the end of the day on December 31.
 
In 2020, the race among the country equity markets may go down to the wire. With seven trading days to go, the difference between MSCI Denmark in the first place and MSCI Taiwan in the second place is 3.4%. MSCI Korea trails MSCI Denmark by 6.7%. As a tired cyclist, who led a long break away from the peloton in a cycling race, MSCI Denmark slowed its growth of total returns by early December after leading for most of eight months since late March. By Friday, December 11, 2020 (when I published the above-mentioned “December 2020: Major Developments at Both Ends of the Table” report), MSCI Denmark lost its leadership and was in third place behind MSCI Taiwan and MSCI South Korea. However, as the cyclist who received the benefit of drafting behind two other cyclists and using less energy needed to overcome air resistance, MSCI Denmark overtook the other two leaders on Monday, December 14, and has been in the first place since then.
 
As of the close of the markets last night (December 21, 2020), MSCI Denmark’s total returns for the year were 41.7%, MSCI Taiwan – 38.3%, and MSCI South Korea – 35.0% (see the Year-to-Date Performance table as of December 21, 2020). Currency returns were a major contributing factor for the difference among the “Top 3” total index returns. From December 11 to December 21, Danish Kroner appreciated versus the US Dollar by 0.9%, New Taiwan Dollar stayed almost the same (appreciated by 0.1%), and the Korean Won depreciated by 1.1%
 
The reason I started this report by saying that the race may go down to the wire is that the difference between the “Top 3” markets is not large and there is a factor that can help the pursuers – MSCI Taiwan and MSCI South Korea. Over the weekend, investors focused on a new especially contagious strand of COVID-19 that was identified in the United Kingdom and described in many publications worldwide. The strand is currently known as “SARS-CoV-2 VUI 202012/01”. In my opinion, yesterday (December 21) most markets had negative returns, some significant, due to this news. [1] For example, MSCI Thailand was in the last 50th place with a negative return of 6.2% (see the Daily Performance table as of December 21, 2020). However, MSCI Taiwan was one of just six markets that had positive returns. It returned 1.0% over the trading session putting it in 2nd place.  MSCI Korea dropped by 0.1% (9th place), while MSCI Denmark declined by 1.0% (18th place).
 
I attribute this performance difference in large part to the fact that Taiwan and South Korea have so far relied on testing-and-tracing practices rather than on the economy-damaging lockdowns to fight the pandemic. Denmark had implemented an efficient and relatively short lockdown in March-April 2020, but still, it was a lockdown. The following comparison of GDP growth rates for 2020 demonstrates the difference in the economic impact of the testing-and-tracing and lockdown strategies. According to GDP forecasts of inflation-adjusted returns measured in local currencies by Oxford Economics, Taiwan’s 2020 GDP is expected to grow 2.5% over its 2019 level, and South Korea’s 2020 GDP is expected to drop by 1.0%. For comparison, Denmark’s 2020 GDP is expected to drop by 4.2% compared to the 2019 levels. In my opinion, if a large number of investors believe that COVID-19 is likely to spread significantly in 2021, MSCI Taiwan and MSCI South Korea may outperform stock markets of countries that rely on lockdowns as the primary defense strategy against the pandemic. 

Sources: Refinitiv, Beyond Borders Investment Strategies. Used MSCI country index performance for 48 countries - all but the US. The US performance is represented by MSCI USA and S&P 500 indices.
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​Happy Holidays!
 
Vitaly Veksler, CFA
CEO & Portfolio Manager
[email protected]
 

Disclaimer: Opinions expressed in this report are of Beyond Borders Investment Strategies, LLC (BBIS) and are for information purposes only. This report does not represent investment advice. BBIS holds investment positions in single-country equity ETFs of some or all countries mentioned in the report. Past performance is not indicative of future results.


[1] There were other factors impacting performance of individual stock markets around the world, but the news about the new COVID-19 strand negatively impacted most of them.  

BOSTON, MA – 12/14/20 – Vitaly Veksler, CEO and Portfolio Manager at Beyond Borders Investment Strategies, LLC (BBIS) published a new update on the performance of global equity markets titled “December 2020: Major Developments at Both Ends of the Table”. Below is the text of the report. 

To read the report in PDF format, please Click Here
 
“There were major developments in the world of global equity investing during the first two weeks of December (through December 11, 2020) both among the leaders and laggards. Stock markets of Taiwan and South Korea, two countries with some of the world’s most sophisticated methodologies of responding to the COVID-19 pandemic, had an extremely strong performance in December. While they started the month in the second and fourth place respectively (see the Year-to-Date performance as of November 30, 2020), Taiwan and South Korea, pushed Denmark, a country that was in the first place in the Beyond Borders Investment Strategies’ (BBIS’) 50-index universe for more than eight months to the third place in the table (see the Year-to-Date performance as of December 11, 2020).
 
Denmark was credited with being one of the first countries to shut down its economy in March and reopening it relatively fast in April. The shutdown was a success because the Danes took it seriously and implemented the social-distancing and other rules that the authorities asked them to follow. As a result of a relatively limited impact of the COVID-19 pandemic on the Danish economy (especially, compared to the devastation it caused in other countries), investors moved their funds into Danish stocks. As a result, MSCI Denmark was the best performer for more than eight months from March 30, 2020 to December 3, 3020. On December 4, 2020, the MSCI Korea index overtook MSCI Denmark as the global leader, only to be overtaken by MSCI Taiwan on December 8, 2020. As of the end of the trading day on Friday, December 11, MSCI indices of these three countries were separated by just 1.3%. MSCI Korea’s total returns (price appreciation and dividends) for 2020 were 37.2%, MSCI Taiwan’s – 36.9% (-0.4%), and MSCI Denmark’s – 35.9% (-1.3%). At BBIS, we think (but do not guarantee) that one of these three countries would take the 2020 performance crown because the rest of the indices are pretty far behind. The difference between MSCI Denmark and MSCI China, which is currently in fourth place with a total 2020 performance of 26.2%, is 9.7%.
 
Both Korea and Taiwan use computerized systems for contact tracing that allowed these countries to avoid major shutdowns of their economies. In these countries, when people are traced to be in contact with a person who was tested positive for COVID-19, these people are to take a 14-day quarantine. Under this model of fighting the epidemics, most of these countries’ economies, including businesses, remain open. As a reminder, long shutdowns often lead not only to lower growth over the current year or next year, but also to a lower long-term economic growth trajectory for countries that implement them. All over the world, founders of smaller companies, which are more likely to go bankrupt during the shutdowns because they often have less financial reserves needed to survive a long shutdown, may not start new companies in the future. By using their technologically advanced strategies of fighting COVID-19, governments of both Korea and Taiwan have managed to protect their economies and businesses from the devastating impact of shutdowns. As global investors are concerned with the new waves of COVID-19 hitting countries around the world during the winter of 2020, they have moved their funds into stock markets of the two leaders in fighting epidemics. These countries developed these skills based on both mistakes and best practices of fighting the SARS outbreak in 2002-2003, less than 20 years ago. Many other countries, especially at the beginning of the pandemic, benchmarked their strategies to the ones used to fight the Spanish Flu epidemic in 1917-1918, more than a century ago.
 
There were also dramatic developments at the bottom of the table. Driven by a lower dollar trend, higher expected demand for commodities, and low stock markets valuations, MSCI Colombia had the best performance in December, so far. It grew by 18.1%, which allowed the market to leave the dreaded 50th last place in the BBIS universe. While Brazilian and Russian stock market valuations were not as attractive as those of the Colombian stocks, the lower dollar trend and higher expected demand for commodities led them to post double-digit positive returns in December.

 
 
Disclaimer. Opinions expressed in this report are of Beyond Borders Investment Strategies, LLC (BBIS) and are for information purposes only. This report does not represent investment advice. BBIS holds investment positions in single-country equity ETFs of some or all countries mentioned in the report. Past performance is not indicative of future results.”