The Action Again Is Overseas as Foreign Markets Bounce Back
After a gut-wrenching spring plunge, many foreign stock markets have returned to a familiar pattern: They're sharply outpacing the U.S. market.
Hong Kong's main stock index, the Hang Seng, hit a six-year high last week. India's Sensex index has rebounded 27% since mid-June, and the French market's CAC index has risen 9.3% in the same period.
By contrast, the U.S. Standard & Poor's 500 index has inched up 3.6% from its mid-June low.
Analysts say the snapback overseas, while many U.S. stocks tread water, is a barometer of global investors' expectations for economic and corporate profit growth in the foreseeable future.
With U.S. economic growth showing signs of slowing, as evidenced by the Federal Reserve's decision to pause last week in its credit-tightening campaign, some investors are betting that they can find hotter stock prospects abroad.
"In Asia, in particular, people are focusing on growth in their own economies," said Clark Winter, global investment strategist for Citigroup Private Bank in New York.
Fear of rising interest rates had been a key trigger of the mid-May to mid-June dive in stocks worldwide. Even though rates are expected to continue rising in many countries overseas, investors appear to be less worried now that higher rates could choke off growth abroad.
Japan's central bank began to tighten credit in July after years of holding short-term interest rates near zero. Yet commercial bank lending rose in July at the fastest pace in more than five years, the Bank of Japan said last week.
Although Japan's Nikkei stock index is down 1.6% year to date, it has jumped 11.5% since mid-June and on Monday reached its highest level since May 30.
In Europe, major stock markets have held on to their summer gains even though the European Central Bank raised its benchmark interest rate to 3% from 2.75% on Aug. 3 and hinted that another increase might come in the fall if the region's economic expansion remained on track.
The hunt for growth also has brought investors back to markets of emerging economies such as India, Mexico and Russia, many of which have generated spectacular stock returns since 2000.
U.S.- and Europe-based mutual funds that invest in emerging markets had a net cash inflow of $373 million in the seven days ended Wednesday, according to Emerging Portfolio Fund Research in Cambridge, Mass. That's the largest weekly inflow since mid-May, just before stock prices began to tumble, said Cameron Brandt, global markets analyst at the firm. The funds tracked by Emerging Portfolio Fund Research have total assets of $122 billion.
