Will Emerging Markets or Developed Markets Lead in 2011?

In Monday's World Wrap, we noted the disparity between the US and Emerging Markets.  While the MSCI US Index was up 5.7% YTD through last Friday, Emerging Markets were down -5.2% for the year.  The trend has been confirmed by our Hays Global ETF Portfolio, as the recommended US exposure has risen from a big underweight to the current overweight of 74%.  In the chart below, you can see the returns for the World, World ex-US, S&P 500, EAFE, and Emerging Markets YTD.

For the first time in a very long time, the EAFE (developed markets) has had huge outperformance versus Emerging Market countries since the start of this year, while Emerging Market countries have dramatically outperformed over the last 5 and 10 years.  You can see the 5-year and 10-year returns in the charts below.

It is our hope and anticipation that we will see a multi-year bull market in both Emerging and Developed countries.  We also hope that we will get a pause here to allow some healthy fear from the dumb speculators and optimism from the smart investors.  We think we have already seen that in the Emerging Markets to some extent, and we would expect the Developed Markets to follow.

To view today's complete Global Market Comment, click here.

Keith Hays

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