Which Performed Better Last Year: US or Foreign Markets?

Foreign stocks, the place where everyone wants to go for growth. Emerging markets are supposed to be the next big thing. The idea is to invest in the countries with lots of people who are hungry for new technology. The US is in too bad of shape right now to invest in. Their financial crisis has even weakened the fixed income markets. Now are you ready for the stats?

In 2008, the S&P 500 fell 34%. Germany and France fell 38%, Japan 41%, Brazil 42%, India 52%, Russia 58%, and China 67%. All these markets have dropped even lower since the new year. However, numbers do not lie. The US still outperformed the world. We were essentially the root of the financial crisis and probably the global recession, yet we end up outperforming everyone else. Now why did these other markets fall so much?

I think that as investors, we were hyped up on "growth" potential in emerging and global markets. We saw a lot of countries, specifically those in Asia, with a huge population and little technology or infrastructure. US companies took advantage and started reaping in profits. I don't think the rise in these stock markets were exactly because of growth potential and the opportunities companies brought to these markets. I think the rise in commodities is what really did it. Many of these countries are rich in natural resources and rode the spike in these commodity prices. The main companies on their exchanges were deriving profits from these resources. When commodities plummeted amid a global recession, so did these companies' earnings and essentially their market value.

Foreign markets are cheap, maybe even cheaper than the US. I would wait to start investing in these markets for a while. Why? Well for one, commodity prices have to start rising again before foreign companies can raise earnings guidance. Second, the US is going to have to rebound and start the inflow of cash into foreign markets before they start to rebound. Finally, the US is the safe haven for foreign investors. Foreign investors have been buying US Treasuries to hide from their collapse. Until they start investing in themselves again, how can we throw our own trust, and money, in them?