Global stock markets stayed steady in the past month despite the coronavirus pandemic. Mammoth policy easing to counter the economic fallout from the COVID-19-led lockdowns caused the rally. Wall Street has especially displayed a sturdier performance. The S&P 500 has gained 2.8% past month.
However, the beginning of the pandemic was not the same with stocks slumping into a bear market in mid-March. Meanwhile, the oil market underwent an extremely rough patch with WTI prices diving into negative territory in mid-April.
Several international economies were in a weaker position than the United States before the virus outbreak and the pandemic made matters worse. Countries like Italy and Spain just got devastated with virus victims and death toll.
In mid-April, IMF forecast that Euro Area would see a GDP decline of 7.5% in 2020 due to virus-led lockdowns, with Italy and Spain experiencing a GDP decline of 9.1% and 8%, respectively. Japan and the United Kingdom were projected to see a fall in GDP by a respective of 5.2% and 6.5%. In comparison, the United States would likely see a recession by 5.9%.
The IMF projection added a decline of 1% for emerging market economies, with Russia seeing a 5.5% slump, Brazil 5.3%, Mexico 6.6% and South Africa 5.8%. Investors should note that financially weaker nations would suffer the fallout more due to rising debt and slumping currencies. Moreover, a further IMF growth forecast cut is “very likely” ahead.
The above growth projections clearly explain the painful scenario for the international economies and the investing spectrum. Still, small-cap international ETFs outdid the S&P 500 past month. Notably, small-cap stocks better reflect the domestic economic strength. While GDP growth of the countries have been whirling down, massive policy stimulus has aided small caps lately.
Massive International Monetary & Fiscal Policy Easing
The ECB is deploying a massive stimulus package to counter some of the economic fallout. In March, it announced a 750-billion-euro ($813 billion) package known as the Pandemic Emergency Purchase Programme (PEPP) which saw it start additional purchases of governments bonds. The program will reach its limit in October.
Bank of England has a QE measure in place and cut rates twice from 0.75% to 0.1% since the start of the coronavirus pandemic. Japan also has a QE policy in action and has low rates. China’s president Xi Jinping said on May 18 that his country will provide $2 billion over two years to help other countries respond to the impact of the coronavirus pandemic.
China enacted several rate cuts amid the pandemic and resorted to other measures. India announced a larger-than-expected stimulus package, which includes 20 trillion rupees ($265 billion). In fact, most countries have launched unprecedented fiscal and monetary stimulus in their respective capacities (read: India ETFs to Gain Ahead on Huge Stimulus?).
ETFs in Focus
Against this backdrop, below we highlight a few foreign small-cap ETFs that beat the S&P 500 past month.
SPDR S&P International Small Cap ETF (GWX - Free Report) ) – Up 8.5%
First Trust Developed Markets ex-US Small Cap AlphaDEX Fund (FDTS - Free Report) ) – Up 8.1%
iShares MSCI EAFE Small-Cap ETF (SCZ - Free Report) – Up 7.5%
Invesco Developed ex-US Small Company ETF (ISDS - Free Report) ) – Up 7.5%
Vanguard FTSE All-World ex-US Small-Cap ETF (VSS - Free Report) – Up 7.3%
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