MSCI ALL WORLD STOCK INDEX HITS 12-MONTH HIGH -- VANGUARD ALL-WORLD EX US ETF ACHIEVES BULLISH BREAKOUT -- CANADIAN STOCKS CONTINUE TO CLIMB -- BRAZIL ISHARES HAVE STRONG YEAR -- MEXICO ISHARES MAY BE TURNING UP -- GERMAN STOCKS LEAD EUROPE HIGHER
MSCI ALL COUNTRY WORLD INDEX HITS 12-MONTH HIGH ... Chart 1 shows the MSCI All Country World Index iShares (ACWI) trading at the highest level since last July. The index of world stocks recently broke through a "neckline" drawn over its November/May highs. The ACWI includes stocks in emerging and developed markets (which include the U.S.). It could be argued that most of its strength is coming from the U.S (which accounts for 51% of the ACWI). That's why today's second chart may be more meaningful. Chart 2 shows the Vanguard FTSE All-World ex-US ETF (VEU) also breaking through a neckline drawn over its October/June highs. As its name implies, the VEU doesn't include the U.S. What it does include are foreign developed and emerging markets. Its biggest weightings are Europe (45%) and the Pacific region (30%). Unlike the EAFE, the VEU does include Canada. And it's a good thing it does. Canada is one of the year's strongest markets.
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Chart 1
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Chart 2
TORONTO COMPOSITE INDEX CONTINUES UPTREND... The Canadian stock market's 2016 gain of 14% makes it one of the strongest in the world. Much of Canada's strength has come from a rebound in commodity prices this year, and crude oil in particular. That's because Canada is a big exporter of natural resources. The weekly bars in Chart 3 show a positive correlation between the Toronto Composite Index (red bars) and the price of crude oil (black bars). It was the strong rebound in the price of crude that started in February that helped launch the Canadian rally. Crude is once again starting to rebound after a summer pullback which is lending more strength to energy shares. Not by coincidence, energy shares are leading the TSX higher this week.
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Chart 3
WEAKER LOONIE HAS HELD CANADA ISHARES BACK ... Canada iShares (EWC) have lagged behind the Toronto Index over the last two years. That was due mainly to weakness in the Canadian Dollar. Chart 4 shows the EWC and $CDW falling together between 2014 and 2015. Since January, however, both have risen together. The direction of the "loonie" plays an important role in the performance of the EWC. That's because the EWC is quoted in U.S. Dollars while the Toronto Stock Index is quoted in Canadian Dollars. When the CDW is weak (2014 through 2015), the EWC underperforms the TSX. When the loonie is rising (like this year), the EWC does better. The weekly bars show Canada iShares nearing a 12-month high after breaking through a two-year resistance line. With a little help from its currency, the EWC could start playing catchup to the TSX.
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Chart 4
RISING REAL BOOSTS BRAZILIAN ISHARES ... Brazil has been global leader for 2016. The MSCI Brazil iShares (blue line) have gained 68% this year to outpace other emerging markets. It's nearly doubled the gain of its own cash index (the Bovespa). The reason for that is a 36% gain the the Brazilian currency (the real). That's the green line in Chart 5. As is always the case, a rising local currency will make its stock ETF rise faster than its local stock index. That also adds to its appeal for foreign investors because they get the benefit of rising stocks and a rising currency. The second biggest economy in Latin America may also be bottoming.
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Chart 5
MEXICO ISHARES ARE TURNING UP -- PESO MAY BE BOTTOMING... Latin America has been one of the world's strongest regions this year. Most of that has been due to Brazil. Mexico (which is the region's second biggest market) may be the next to turn up. The daily bars in Chart 6 show the MSCI Mexico iShares (EWW) trading at the highest level in four months and approaching a "neckline" drawn over its November/April highs. The Mexican ETF has lagged behind the Mexican Bolsa (green line) which is trading near a new record high. That could start to change if the Mexican Peso turns up. Chart 7 shows the Peso versus the dollar in what could be the start of a bottoming process. A stronger Peso would attract more money to that country, and especially to the Mexico iShares. By the way, what all three countries shown here have in common is a reliance on the price of oil. Their relative strength may carry good news for the commodity and shares tied to it.
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Chart 6
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Chart 7
GERMANY LEADS EUROPE HIGHER... Things are looking up for Europe's biggest economy. The daily bars in Chart 8 show the MSCI Germany iShares (EWG) clearing its "neckline" drawn over its November/June highs. Chart 9 shows the German DAX Composite Index climbing to the highest level in eight months. It also cleared a falling trendline extending back to spring 2015. That's going to boost global stock indexes, including the EAFE which measures foreign developed markets in Europe Australasia and the Far East. The EWG has done slightly better than the DAX this year owing to a 2.3% gain in the Euro versus the dollar.
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Chart 8
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Chart 9
FTSE HITS 52-WEEK HIGH... British stocks are also doing very well. Chart 10 shows the London Financial times ($FTSE) surging to a new 52-week high. A lot of its gain since the Brexit vote has come from a plunging British Pound. That benefits large stocks in the FTSE that are export-oriented. Even so, it is trending higher. And that's usually a good sign.
