Global equity markets have fared well this year despite concerns of a widespread economic slowdown, but the U.S. equity market has done exceptionally well, outperforming corporate earnings relative to the rest of the world.
According to analysis by Société Générale, 78 percent (12,400) of global developed and emerging market stocks have failed to beat the S&P 500 in the past two years. Looking at the past year alone, the picture is a little less gloomy, with 66 per cent of stocks underperforming.
“This high-profile index provides such a tough performance benchmark that increasing it convinces investors that just buying the S&P 500 will do,” wrote Andrew Lapthorne, head of quantitative equity research at Société Générale.
Over the past few years, the US government has offered companies a sugar rush of tax cuts that buoyed the tech sector and made it very difficult for the rest of the world to keep up. At the same time, weak global growth and political upheaval caused investors to retreat into the largest and safest equity market.
“If the measurement of company success is outperforming the 500 largest-cap U.S. businesses supported by the US Federal Reserve, debt-funded share buybacks and increasingly sophisticated financial products, then you can understand why less businesses are going public and private equity is booming,” added Mr Lapthorne. “I find this depressing.”
Others are a little more optimistic about the future performance of global stocks compared with the US benchmark, forecasting growth in the US and elsewhere in the world to begin converging.
“Today, looking forward, we see that the US outperformance is running out of steam,” said Kasper Elmgreen, head of equities at Paris-based Amundi. “The U.S. is looking rather expensive relative to Europe and other emerging markets.”
“If we look ahead, I’d caution that things might start to look different,” he added.
Source: Financial Times