Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Looking for a Bottom in Global Equity Markets

By James PicernoStock MarketsNov 30, 2022 02:02PM ET
www.investing.com/analysis/looking-for-a-bottom-in-global-equity-markets-200632957
Looking for a Bottom in Global Equity Markets
By James Picerno   |  Nov 30, 2022 02:02PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
VT
-1.11%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
ILF
-2.36%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AFK
-1.62%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CEE
-1.59%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

For most equity strategies diversified across global markets, this year’s results will be painful. Short of a dramatic run higher between now and the end of 2022, red ink will prevail. But when losses dominate, it’s time to start looking for bargains.

The longer your investment horizon, the more confidence you can muster that the losses year to date imply relatively attractive return expectations. But the analysis is especially tricky at the moment as several risk factors dominate the outlook, including the war in Ukraine, elevated inflation, rising interest rates and signs that recession is near.

Baron Rothschild famously advised that “the time to buy is when there’s blood in the streets.” By that measure, markets arguably offer an opportunity to go risk-on at a point of maximum pessimism. Reviewing year-to-date results for the world’s equity regions, through a set of proxy ETFs, certainly paint a grim profile.

With the exception of shares in Latin America (ILF), the main slices of world stocks are deep in the red in 2022, ranging from a relatively mild 14.6% haircut for stocks in Africa (AFK) to a devastating 71.0% crash in eastern European markets CEE).

World Regional Equity Markets YTD Returns
World Regional Equity Markets YTD Returns

The world benchmark, based on Vanguard Total World Stock Index Fund (VT), is in the hole by 16.5% so far this year. The good news: VT has rallied in recent weeks, inspiring hope that the worst has passed.

VT Daily Chart
VT Daily Chart

No one can reliably call bottoms (or tops) in real time and so mere mortals are once again left to decide if we’re at an opportune point to start rebalancing in favor of higher equity risk. There’s a case for shifting to a risk-on posture, if only partially, on the assumption that that the losses so far in 2022 have materially boosted the long-run expected return for stocks.

The caveat is that the trend still looks bearish. Using VT as a yardstick, the latest rally has lifted the fund to just below its 200-day moving average. Encouraging, but until VT moves decisively higher, and holds its position, the latest bounce looks like one more bear-market rally.

The big-picture question for investors is deciding if they’re more comfortable being early or late for the next bull market. Either way you’re going to suffer an opportunity cost. A third option is to diversify the risk-on trades through time, redeploying capital in stocks at regular intervals and thereby mitigating the losses from timing errors that surely lie in wait for most investors. On that basis, nibbling at markets now is appealing.

Using a set of moving averages to monitor trending conditions for all the funds listed above suggests the recent wave of selling was excessive. That’s no assurance that we’ll avoid even lower lows. But after a year of sharp losses, it’s reasonable to start throwing some money at equity markets.

VT Wealth Index Vs. Percentage of Regional Equity Funds Trending Up
Index Vs. Percentage of Regional Equity Funds Trending Up

Bearish news will likely continue to weigh on sentiment for the near term, and perhaps longer. But markets are always pricing in the future. That’s always a messy affair, and this time is no different. This may be one more false dawn, but at some point a genuine bottom will arrive. There’s nothing wrong with waiting for confirmation that the bear market has ended, but for investors with a relatively high tolerance for risk the current climate looks intriguing.

A key factor is deciding if the Federal Reserve’s close to pivoting on interest-rate hikes. On that point the crowd is looking for fresh clues in today’s speech by Fed Chairman Jerome Powell. Expectations are high that he’ll hint that policy tightening will begin to ease. Hope springs eternal, again.

“This is a Fed-made recession, so eventually when he does pivot, the market should move higher pretty quickly,” says Steve Grasso, CEO of Grasso Global.

Looking for a Bottom in Global Equity Markets
 

Related Articles

Looking for a Bottom in Global Equity Markets

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email