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| Nowhere To Hide: Foreign Stocks Catch 'Flu' In Q3 |
| Friday, 03 October 2008 13:51 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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In the initial nine months of 2008 through September, key markets around the world suffered from a mixture of a strengthening U.S. dollar and a global credit crisis. The backlash didn't find many places to hide, either in the third quarter or the opening nine months. The only international market producing a gain so far this year was Jordan, up a tiny 0.96%, according to results from Standard & Poor's indexes across the world. (For a complete breakdown of monthly, quarterly and yearly returns by country and region, see the tables on the next page.) "When you consider that Jordan is a very small market which can be difficult for U.S. investors to find easy exposure to, there has really been nowhere to hide in terms of bulk and liquidity," said Howard Silverblatt, Standard & Poor's senior index analyst. According to S&P's index services unit:
The biggest loser for the year was tiny Iceland, where stocks were down 69.17% entering the fourth quarter. Other Nordic markets which have been some of Europe's steadiest performers in the past several years but continue to bleed in 2008 include: Norway (-42.79%); Sweden (-35.91%) and Denmark (-30.79%). Even previous European stalwarts such as Ireland have fallen on tough times, dropping more than 51% for the year—and nearly 40% in the third quarter alone. "Almost every overseas market was down 20-50%, which shows how nervous investors are on a global basis," said Geoffrey VanderPal, a Las Vegas-based advisor and professor who also serves as a part-time diplomat for the Slovak Republic. "Liquidity issues in mortgage markets have been driving the economic slowdown, but this year we've seen a snowballing effect into other areas," he added. Parts of Europe are experiencing rising unemployment rates, lower consumption as well as government bank bailouts and some failures. As a result, VanderPal—a frequent international traveler and investor in overseas markets for his high net worth clients using exchange-traded funds—believes the U.S. dollar's improving fortunes of late are more due to weakness in the euro. "I was recently in Ireland, for example, and talked to several business owners. I also made a point of talking to sales clerks in major retail outlets in Dublin, who told me that foot traffic is starting to drop way down in just the past few months," VanderPal said. The big three economies of developed Europe—the U.K., Germany and France—have all slid more than 30% so far this year. But even previously fast-growth emerging markets in eastern and central Europe have slowed notably. Those included the Czech Republic (-24.15%); Hungary (-29.96%); and Poland (-31.37%). "For awhile, a lot of the eastern and central European countries were getting quite a bit of business from western European outsourcing activity," VanderPal said. "But that business has slowed as developed European markets slowed."
Still, he sees that cheaper labor and production costs in developing eastern and central Europe should keep those markets competitive. "That's especially true if developed markets continue to decline," VanderPal said. "Companies will still want to choose the lowest-cost provider as cost pressures rise." China and Russia were both down more than 46%. "Most of the damage in those markets was done in the past three months," said S&P's Silverblatt. "Sagging oil and commodities prices in the third quarter took away from these markets. But these have been and continue to be very volatile developing markets." The bottom line, he adds, is that "while the U.S. has gotten a cold, the rest of the world has gotten the flu."
Source: Standard & Poors Index Services; data through Sept. 2008
Source: Standard & Poors Index Services; data through Sept. 2008
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