The ETF Portfolio Strategist: Saturday, Jan. 23

The Bull Market Revives

Equity markets around the world closed higher this week. Last week’s stumble inspired a new round of worries, but a lot can change in a week. For now, the bulls show no signs that they’re ready to throw in the towel on the post-coronavirus-crash recovery.

This week’s top performer: stocks in Asia sans Japan shares. The iShares MSCI All Country Asia ex-Japan ETF (AAXJ) surged, rising 3.6% this week through Friday, Jan. 22. The rally left the fund just below a record high, which was set on Thursday. Much of the fund’s upside is due to strong gains in China- and Taiwan-listed names, which represent 44% and 15% of the portfolio, respectively, as of Jan. 21, according to iShares.

Macro factors played a roll in the bubbly prices. China this week reported that its economy rose 2.3% last year. That’s a weak performance by China’s standards, but in the context of a global pandemic the gain is impressive. Indeed, the increase in output marks one of the few economies to end 2020 with a full-year expansion.

Stocks generally had a good week, including US shares, which rallied 1.9% via Vanguard Total US Stock Market (VTI). The power shift in Washington this week hasn’t rattled Wall Street, at least not yet.

By some accounts, the Biden administration’s push for more stimulus/relief is bullish for the near-term since it raises the odds that the economy will stabilize/rebound in the months ahead. There’s the question of whether we’re in a buy-the-rumor-sell-the-news scenario, but for the moment the arrival of Team Biden hasn’t frightened the bulls.

The losers this week on our list of ETF proxies for the major asset classes is limited to foreign bonds, US investment-grade corporates, commodities, and shares in Latin America, which posted the biggest decline for the fund set in the table below.

The iShares Latin America 40 ETF (ILF) tumbled 3.9% this week, adding to the previous week’s modest decline. The depth of the recent slide raises questions anew about the fund’s recovery of late. Despite ILF’s recent rally, it never regained its pre-coronavirus heights, in contrast with most of corners of the equity world. The next couple of weeks will be a test of whether ILF has the right stuff to keep the rebound alive.

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Disclosure: None.

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