This blog is from the July issue of Portfolio Perspectives.
Unlike fans of horror movies, markets hate scary surprises.
On June 22, many markets, even betting parlors, were predicting that British voters would opt to stay in the European Union (the odds went as high as 80% for staying). On June 23, gamblers and markets were proven wrong and stocks fell precipitously around the world, plunging more than 5% in the U.S. in just two days.
Some of the doomsayers from January, when the S&P 500 Index sank more than 10% and then rebounded to positive territory again by the end of Q1, came out of the woodwork to predict new Brexit-related disasters. Even European Council President Donald Tusk said, “I fear that Brexit could be the beginning of the destruction of not only the EU but also of western political civilization in its entirety.” Continue reading
What was “Brexit” and why did it happen?
Brexit (short for “British Exit”) was the nickname given to the movement to persuade the British government to pull Britain out of the European Union (EU). A nationwide referendum — only the third in modern history in Britain — took place on June 23, 2016, and by a close vote of 52% to 48% British voters asked their government to negotiate a deal to leave the EU.
The idea of creating a single, common market across Europe began in the aftermath of World War II. A slow effort, but by 1993, a single market was created covering 28 countries. Borders were opened and visas for travel and work permits abolished. An important milestone was the development of the European Monetary Union in 1999 which, by 2002, had converted 19 of the 28 countries (defined as the “eurozone”) over to a single currency, the euro. Britain was a party to the EU, but it did not choose to participate in the eurozone, and thus preserved its use of its home currency, the pound.
While Britain, like most of the other EU countries, benefited economically from a common market, Britain has never been as comfortable with some of the political aspects of the EU. Long-term immigration trends and their recent acceleration under the EU have stoked strong nationalist feelings in Britain, leading to the political movement to exit the EU.
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This blog is from the February issue of Portfolio Perspectives.
The international stock markets have underperformed U.S. stock markets for three straight years.1 China came out of the gate in 2016 like a lead balloon, causing other markets in Asia to decline as well. To make things worse, China devalued its currency, possibly signaling a pessimistic view of their economy and putting pressure on European countries to do the same.
Concerns about Greece exiting from the European Union, China’s economic slowdown and volatility in its financial markets, and Puerto Rico’s debt “death spiral” permeated financial markets throughout 2015. These concerns clouded what turned out to be a relatively mild result in 2015 with the MSCI All Country World Index Net Return USD returning -2.36% for the year (but returning 1.27% when quoted in local currencies). Continue reading
The last month has been custom-made for the financial press. Greece potentially voting to exit the Euro? China’s stock market in a free-fall despite heavy government intervention? Puerto Rico’s Governor pronouncing the island is in a debt death spiral? It’d probably be hard to create more sensational, yet ultimately unusable, news than this for investors. Continue reading
I came across this article recently:
“Why invest in international funds? It’s a mystery.” At the time of writing this post there was one individual who commented that this was the “dumbest article I have ever read.” This commenter may have a valid point. Continue reading
Imagine investing in an asset that has increased in value by 14.8% per year over the last three years. This asset also had a standard deviation in the single digits during this period and had a positive return when U.S. stocks fell last September. Continue reading