The complexion of U.S. stock market performance in 2020 takes on a different hue when expanding the lens to include additional global stock markets. That’s because, in contrast to the U.S., many of the world’s highest-profile stock markets are down in 2020—some of them significantly.
The caveat is that U.S. markets aren’t up that much either, at least outside of the technology sector. The S&P 500 is up about 4.08% in 2020, whereas the Nasdaq Composite is up 25.73%. The Dow Jones Industrial Average is actually down nearly 5% this year.
But even the S&P 500’s meek gains in 2020 might be considered enviable by a large portion of investors and traders outside the United States. For example, the primary stock market index in Spain, the IBEX 35, is down over 29% year-to-date (YTD).
Likewise, investors in Great Britain probably haven’t enjoyed reviewing their portfolios over afternoon tea this fall because the primary British stock market index, the FTSE 100, is down over 24% YTD.
On the other end of the spectrum, stock markets in China, Denmark, South Korea and Taiwan have produced positive gains, alongside the United States, as one can see in the 2020 global stock market index performance data below (as of Oct. 27, 2020):
- Nasdaq (USA): +25.73%
- OMX 20 (Denmark): +20.90%
- KOSPI (South Korea): +7.16%
- TAIEX (Taiwan): +6.45%
- Shanghai Composite (China): +5.48%
- S&P 500 (USA): +4.08%
- NIKKEI 225 (Japan): +0.78%
- OMX 30 (Sweden): -1.72%
- SENSEX (India): -2.56%
- KSE 100 (Pakistan): -2.59%
- TSX (Canada): -5.97%
- AEX (Netherlands): -9.75%
- DAX (Germany): -9.88%
- ASX 200 (Australia): -10.70%
- Hang Seng (Hong Kong): -13.16%
- IPC (Mexico): -13.93%
- BOVESPA (Brazil): -16.98%
- CAC 40 (France): -20.14%
- FTSE 100 (Great Britain): -23.83%
- IGPA (Chili): -24.78%
- RTS (Russia): -27.67%
- BUX (Hungary): -28.63%
- IBEX 35 (Spain): -29.87%
The good news about the above data is that disparate global returns can be indicative of an investment environment rife with opportunity. For example, if investors and traders believe that U.S. markets are fairly priced, they might go value shopping in France, Russia or Spain.
On the other hand, if volatility traders in the U.S. market think volatility is too cheap to sell, they might find more enticing short options opportunities in another country, or even decide to pairs trade volatility—betting on long volatility in one and short volatility in another.
Whether it be direction or volatility, investors and traders can always find access to global exposure through international exchange-traded funds (ETFs), which typically have associated options and are offered on U.S. exchanges.
International ETFs usually focus on a single region of the world (i.e. Southeast Asia), a single country (i.e. China) or a group of international companies with a similar profile (i.e. global gold miners). And in most cases, there will likely be several ETFs offered for a given country or region.
The performance of a given international product will depend on what’s included in it, much like how in the United States, the performance of the S&P 500 (a more diversified index) will differ from the Nasdaq (a technology-heavy index).
Using China as an example, one could choose between the iShares China Large Cap ETF (FXI) or the SPDR S&P China ETF (GXC). In 2020, the FXI is almost perfectly flat (i.e. up 0%), while the GXC is up 19%. Much like the Nasdaq, the tech-heavy KraneShares CSI China Internet ETF (KWEB) is up a whopping 40% this year.
Beyond reviewing the components of a given international ETF, it’s also highly recommended to double-check that liquidity is robust in both the underlying and options (for those trading options).
To learn more about trading global ETFs, readers are encouraged to review detailed tastytrade programming on this subject. A great place to start is a recent episode of Market Measures: Country ETFs as well as a past installment of Options Jive: Trading International Markets.
In addition, those interested in trading international options should find this episode especially compelling: Market Measures: International Expected Moves vs. Actual Moves.
Sage Anderson is a pseudonym. The contributor has an extensive background in trading equity derivatives and managing volatility-based portfolios as a former prop trading firm employee. The contributor is not an employee of Luckbox, tastytrade or any affiliated companies. Readers can direct questions about any of the topics covered in this blog post, or any other trading-related subject, to firstname.lastname@example.org.