Gains Overseas May Be Start of Trend

Washington Post
Steven E. Levingston

Sunday, November 30, 2008; Page F02
Not so long ago -- think back about a week and a half -- stocks seemed to be in a freefall again. A fresh wave of financial panic knocked more than 10 percent off Standard & Poor's 500-stock index over two days. Then the clouds lifted a bit. Citigroup got a massive capital infusion and President-elect Barack Obama introduced his financial team. And stocks got a robust bounce.
Market-weary investors tend to focus only on the frenzy. But for Tom Sowanick, chief investment officer at Clearbrook Financial, an investment management company in Princeton, N.J., the noise masks what he believes is a positive trend that has emerged over the past month or so. He finds the good news not so much in the United States -- but overseas. What is happening on exchanges in China, Brazil and Russia, he says, has significant ramifications for investors here.
In China, the CSI 300 index is up about 17 percent from Nov. 4, which Sowanick says could be its bottom. In Brazil, the Bovespa is up about 15 percent from its low on Oct. 27. Russian shares also have bounced off their bottom, with the RTS index up about 23 percent since Oct. 24.
Why is this important for the U.S. market? In Sowanick's view, the gains on the emerging markets suggest that global investors are regaining an appetite for risk (emerging markets tending to be most risky). In the heat of the financial crisis, risk has become a dirty word. But to operate effectively, markets do need investors to assume some risk. China's own giant stimulus package has helped, along with the emergency rescues and transfusions from the U.S. Treasury. While Sowanick cautions that the performance of the emerging markets could be another false start, it might also suggest that those markets are leading the way to a global recovery.
"To say that the U.S. markets are market leaders may be patriotic but not necessarily accurate," Sowanick wrote in his market update last week. "In fact, the data suggests that emerging equity markets may once again be ahead of developed markets in setting the stage for establishing market bottoms, and therefore potential market reversals."