Sometimes the best places to invest are in the scariest assets that have experienced the largest declines. Historically bear market declines are followed by bull markets. The greater the market crash, the greater the market recovery that follows it usually is. This is what David Dreman called investor overaction, when the economy is growing investors bid up equity prices too high, and when the economy is sour and the future is uncertain the market overreacts on the down side. This phenomena occurs in all asset classes, however stocks are the most affected since they are more volatile than must other assets classes. This phenomena is not unique to the United States, numerous studies have confirmed that foreign Investors overreact as much as American investors. For example the Russian stock maket declined about 83% from its peak in May 2008 until February 2009. This made Russia one of the worst performing equity markets during that time period. However since February the Russian Stock market has gone up 173% making it one of the best performing equity markets.
Globally, nearly every stock market has experienced massive declines due to the global financial crisis. Most stock markets reached a Peak during October 2007 and continued to decline from a time period ranging from November 2008 until March 2009. Since that time period markets worldwide have went on to provide massive returns to investors. I decided to compile a chart detailing countries that have experienced massive stock market declines. These countries have went on to be some of the best performers subsequently. In the last column on my chart, I provided the percentage that the market is off its peak. This last column shows that while an investor may have missed the rally there still may be more room for returns. For example Russia is still off 50% from its peak reached in May 2008. However it is important to remember that if the market goes up 50% it will still not reach its peak, it has to increase by 100% to reach its previous peak. This furthers my cases that many of these markets still have ample room to move.
I only included countries that had an ETF that I could obtain sufficient information about. Iceland to my knowledge would make the list since it had a huge stock market decline and has probably been the country most affected by the global financial crisis. Iceland had a massive one day drop of 76% in October 2008 alone!, however there is no Iceland ETF and I therefore did not include Iceland in my table below. Ireland has an ETF symbol IQE, however I could not locate sufficient data on the ETF and therefore had to omit it from the chart below. Therefore I only included the countries that had ETFs I could obtain information on. I did not include any regional ETFs (ie Latin America) I focused exclusively on country ETFs.
|Peak To Trough %|
|% Increase From |
|% Off From|
It should be noted that four out of the five countries listed are BRIC countries (Brazil, Russia, India, China). It is ironic that these countries which are touted as high growth countries and as very attractive investments were the most dumped during the global sell-off. As a value investor I see this as a classic case of everyone trying to get in on the latest craze. However, once these speculators lose a significant chunk of their investment they sell to protect against further loses. However, since the sell-off many investors have come back to their senses and are getting exposure to these countries again. Many investors are now poring into these markets because they are becoming "hot" again.
However despite the large run up there there may still be more upside for these ETFs which are still selling at a large percentage below their peak. This is not a buy recommendation, every investor must analyze these etfs and see if they are right for their portfolio. In addition many of these countries are still experiencing economic difficulties. Russia has a declining population and an economy entirely dependent on natural recourses. China is dependent on exports which many countries are no longer purchasing. However every investor should look for possible opportunities in these ETFs since they might still be considered a good contrarian/ value buy.
Disclosure: I do not own any of the ETFs mentioned above, however I have large exposure to Russia through my holding of ETF GUR Emerging Europe ETF