There is no escape, warns the FT’s John Authers in Friday’s Short View column. People investing in stocks have lost money since world equities peaked on Hallowe’en last year and shifting around the world cannot change that. The amount you lose is determined by your home currency.
Once the tectonic shifts in the forex market are accounted for, the Japanese, European and US stock markets have performed identically since October 31.
In yen terms, the Nikkei 225 is down 24.1 per cent, the S&P 500 is down 24.8 per cent, and the FTSE-Eurofirst 300 is down 24.5 per cent.
In dollar terms, these indices, covering totally distinct groups of stocks, are all down between 12.2 per cent and 13.1 per cent. And in euro terms, they are down between 19.5 per cent and 20.4 per cent. The indices have tracked each other perfectly.
Why is this happening? In times of crisis, correlation increases. Developed market equities, for the moment, are all the same thing, their price contingent on the latest news on the credit crisis, commodity prices and US economic data.
Moves in equity funds may also explain this. Since 2003, equity investors have lost their confidence in the US. In that period, a net $392bn has flowed into non-US equity funds, according to Emerging Portfolio Fund Research, while $7bn went into US equity funds.
US funds have suffered actual outflows since 2006. The pace of those outflows rose early this year but that has been eclipsed by a rush out of non-US funds, which had shed $58bn for the year by March 19. Over the last three weeks, US equity funds have attracted $22.6bn, while others have lost $14.2bn.
Retail and institutional equity investors may now be taking their cues from the forex market; buying stocks denominated in whichever currency appears undervalued. Macro hedge funds doubtless exploit this. The result: there’s no place to hide.
