Equities outside the US in developed markets topped last week’s widespread gains for the major asset classes, based on a set of exchange-traded funds. Rising nearly 2% for the trading week through July 17, the rally in this corner lifted prices to a level that’s close to a post-correction high.
Vanguard FTSE Developed Markets (VEA) rose 1.9% last week, paring the fund’s drawdown to 9.4% — near the smallest peak-to-trough decline since the coronavirus crash in March. The latest rally marks the second time since the correction that VEA has posted three straight weekly gains. Traders will be watching to see if the ETF’s upside bias can survive for a fourth weekly rise.
Most of the major asset classes rose last week. The winners included US junk bonds (JNK) and US stocks (VTI), which were the second- and third-place gainers, respectively.
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On the flip side, shares in emerging markets suffered the biggest setback last week. Vanguard FTSE Emerging Markets (VWO) fell 1.3%–the ETF’s first weekly decline in three weeks and the biggest slide since June.
After a strong rally earlier in the month, analysts are reassessing the outlook for shares in emerging markets, focusing on cues from monetary policy.
“G-7 central-bank policy will remain the key driver for emerging-market asset performance, with the excess liquidity keeping the backdrop relatively stable,” advises Simon Quijano-Evans, chief economist at Gemcorp Capital in London. “That is also helping to counter any idiosyncratic negatives out of individual emerging-market countries, especially with regard to how governments are dealing with the Covid-19 onslaught.”
The Global Markets Index (GMI.F) continued to rise last week. This unmanaged benchmark, which holds all the major asset classes (except cash) in market-value weights via ETFs, increased 1.1% — the index’s third consecutive weekly advance.
For the one-year trend, US investment-grade bonds are still the leading performer for the major asset classes. At last week’s close, Vanguard Total Bond Market (BND) reached a 10.0% annual increase.
Meanwhile, the worst one-year performer, by far, remains broadly defined commodities. The iShares S&P GSCI Commodity-Indexed Trust (GSG) was in the red by more than 34% at last week’s close vs. the year-earlier price.
GMI.F’s one-year total return continued to edge up, ending the week with a 5.9% increase.
Ranking asset classes based on current drawdown still reflects a wide range of results: from a near-70%-peak-to-trough decline for commodities (GSG) to zero drawdowns for inflation-indexed Treasuries (TIP) and investment-grade US bonds (BND).
GMI.F’s current drawdown is a modest -2.6%.
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