Over the past 6 months, markets have witnessed significant divergence across geographies, sectors and asset classes. From June to December, foreign stocks have substantially underperformed domestic stocks as foreign currencies experienced substantial depreciation relative to the U.S. dollar. The Euro has fallen 9%; the British Pound, 7%; and the Japanese Yen, 13%. These foreign exchange losses drove significant underperformance of equity markets in the relevant geographies. For example, the MSCI Europe Index underperformed the S&P 500 Index by almost 19.0%.
The most striking development over this time period has been the collapse in global oil prices, with crude oil declining 47%. This has led to significant declines in the prices of equity and debt instruments tied to the oil sector. Continue Reading »