There is an old saying that when the U.S. market sneezes, international markets catch a cold. This week, the election seems to have contributed to a big sneeze in the U.S. markets, but foreign markets handled it with little more than a sniffle.
A number of foreign media sources have even gloated over America’s electoral predicament, seeing America as constantly lecturing the world on “fair democratic elections” yet now slipping up in its own electoral process. So far, it appears that international markets defied the familiar saying, many of them handling the current election uncertainty much better than the U.S.
Intrigued by the reaction of global markets to the election, I compared the U.S. dollar performance of 62 major global stock markets from Monday, 11/6/00 through Friday, 11/10/00. During this period, which includes the time of maximum political uncertainty (we hope), the U.S. market was the hardest hit. The S&P 500 index was down 4.62%, while the NASDAQ Composite Index was down a whopping 11.3%. The NASDAQ 100 Index was the worst performing index in the world, down 12.16%. Many markets, mostly emerging markets, were actually up during this time: the Taiwan index was the top performer, up 7.92%. The Chinese Shanghai B-share index was up 1.95%, Korea was up 1.43%, and Indonesia was up 2.34%. Closer to home, the Argentine, Columbian, and Venezuelan stock indexes were each up fractionally.
Overall, more markets were down than up during this period. The Bloomberg European 500, representing major stocks throughout Europe, was down 2.83%, but still performed substantially better than U.S. stocks. Negative announcements in the U.S. technology sector contributed to U.S. stocks’ poor performance, and dragged down technology stocks globally. However, while the Taiwan and Korean markets are both considered “technology sensitive,” both markets rose.
It was particularly interesting to see China’s stock market among the top performers. The Chinese government made it clear that it preferred Gore to Bush as America’s next president, and according to a poll taken before the election, Chinese citizens also favored Gore over Bush. Perhaps from the Chinese point of view, the uncertainty of the vote is seen as an improvement over what was previously thought a likely Bush victory.
Many investors, including asset managers, hedge funds, and individuals, have placed bets based on their election expectations. For example, it’s well known that investors expecting a Bush victory bought tobacco, defense, and drug stocks, and perhaps other investors bought internet stocks thinking Al “father of the internet” Gore’s victory would give them a boost. [ :) ] Some global investors may have even placed political-based trades on foreign markets, thinking certain countries would benefit from one candidate winning more than another. A possible example of this is Mexico, which some expect to profit from a Bush victory due to Bush’s friendly relations with its incoming president. Perhaps the election uncertainty contributed to Mexico’ s 3.24% stock market decline, the worst performance in Latin America.
As a general principle, international markets want whichever president will provide the strongest, most open U.S. economy. So far, however, it appears that foreign markets are not overly concerned about America’s tight and confusing election, and in fact many may provide diversification from America’s political storm. That is certainly ironic, considering that many American investors believe only foreign markets is threatened by political risk.
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