Countries beating the coronavirus are getting ‘rewarded’ in the stock market, ETF analysts say
Trading the Covid-19 curve can prove challenging.
With global case counts still rising, investors should consider buying into countries that have gotten a better handle on the virus than others, ETF Trends CEO Tom Lydon told CNBC’s “ETF Edge” on Monday.
“Take Europe,” Lydon said. “Areas like Italy are not doing well with the coronavirus and their markets aren’t doing well. [In] contrast, northern Europe, the Nordic regions, are actually doing really well.”
The iShares MSCI Denmark ETF (EDEN), for one, is up nearly 18% year to date. That fund is heavily weighted toward health-care and industrial stocks, with pharmaceutical play Novo Nordisk accounting for more than 18% of the portfolio.
The Global X FTSE Nordic ETF (GXF), which has exposure to Sweden, Denmark, Finland and Norway, is also in the green for 2020, up almost 10%. For comparison, the broader Vanguard FTSE Europe ETF (VGK) is underperforming, down about 9% for the year.
On the other side of the world, China’s recovery has also been impressive, Lydon said.
“Like it or not, China’s done a great job in tackling the virus lately and there’s been a lot of encouragement among the local media in China for investors locally to buy stocks,” he said. “That’s rewarded the Chinese stock market in a great way, too.”
Jan Van Eck, CEO of Van Eck Associates, was amazed by China’s economic progress.
“What I like to point out is that the central bank has actually allowed interest rates to rise there over the last couple of months, which means that they’re so confident in their economic recovery that they just don’t feel like they need to be doing a ton more stimulus,” he said in the same “ETF Edge” interview.
“The whole thing could be a head fake, but China seems to be growing,” he added.
Van Eck’s firm runs the VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT), an ETF focused on small and mid-sized Chinese companies in the tech, consumer staples and discretionary, and health-care fields. It has climbed nearly 40.5% year to date, and according to one indicator Van Eck follows, it could have more to go, he said.
“I love what I call Dr. Copper, which is copper prices, as an indicator of economic growth globally,” he said. “Copper’s higher than it was before we went into this coronavirus recession. So, I think that’s another sign that, actually, the global economy is doing pretty well.”
There could be truth to that. The U.S. market is about 90% of the way through earnings season and companies are handily beating expectations.
With results coming in 22% above estimates, according to Refinitiv, the stateside stock market has definitely been “ahead of the game,” said Ben Carlson, director of institutional asset management at Ritholtz Wealth Management.
“It’s hard to say whether it’s gotten too far ahead of itself, but I think the stock market has been maybe smarter than people give it credit for,” he said in the same “ETF Edge” interview.
“But if you look at countries like Germany and South Korea and Australia who have also done better than the U.S. in the crisis, if you look from the bottom … on March 23, those stock markets are up 60, 70% in some cases versus a 50% gain for the S&P,” Carlson said. “So, I think some of these countries who have handled it better are actually seeing some benefits in their stock markets.”
