Holiday Bargains in Some Global Stocks

12/18/2008 10:59 am EST

Focus: GLOBAL

Eoin Treacy

Global Strategist, Fullermoney.com

Eoin Treacy, global strategist at Fullermoney.com, says the bear may be losing steam in some regions of the world.

Which markets are performing best in the current environment? I selected 96 country indices and then filtered them by local currencies, US dollars, British pounds, euros, Japanese yen, Swiss francs, and Australian dollars.

Most stock markets remain in down trends, and evidence of base formation development is still tentative in most cases. These down trends are already well-developed, so becoming increasing bearish as sentiment deteriorates is probably not the best course of action.

When we sort the list in local currencies by three-month performance, the first globally significant market on the list is the Shanghai Composite index. It also figures highly when we look at the list adjusted for other currencies. This is significant, because China was one of the worst-performing markets in the world during the first half of the year and has since improved quite considerably in relative terms.

In absolute terms, the Chinese stock market continues to have the best base formation characteristics of any equity market and would need to sustain a move below 1660 to question potential for further support building and gradual mean reversion.

Also of interest is the relative performance of the Topix 2 and Section Index [in Japan]. The Second Section (newer-listed stocks that don’t have to meet as rigorous criteria as those in section 1 of the Tokyo Stock Exchange—Editor) peaked 18-months and 13 months before the Nikkei 225 and Topix.

It remains in an overall down trend and accelerated lower in the first week of October. However, it found support above 1850 and continues to range above that level. It is currently testing the lower side of the range and needs to hold above the October lows to offset scope for base formation development to continue at somewhat lower levels.

[One-third of the global indices I analyzed] are now trading at or below their book values. Some investors might have reservations about such measures, but this is still a significant number of markets trading at historically low levels. This does not mean that the number cannot increase, but it does suggest that many indices have returned to levels which should begin to interest value investors.

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