Geo-Political Developments and Market Movements

This past week has been marked by significant geo-political developments. Trump has sparked attention with threats of a 100% tariff on BRICS nations if they attempt to replace the dollar, signaling further tension in global economic relations. In parallel, the Asia-Pacific region experienced turbulence following South Korean President Yoon Suk Yeol’s declaration and subsequent lifting of martial law, a move that rocked the South Korean won. The announcement was enough to trigger a selloff, prompting officials to pledge "unlimited" support to the markets in an attempt to stabilize the situation. Elsewhere, Zelensky suggested that the "hot phase" of the war in Ukraine could come to an end if unoccupied Ukraine joins NATO, a proposal that could potentially shift the dynamics of the conflict. In the Middle East, the US and France brokered a ceasefire in the Israel-Lebanon conflict, expected to halt hostilities for 60 days and potentially lead to a permanent cessation of fighting. These global developments have created an environment of heightened uncertainty, which is reflected in international markets. Given these geo-political uncertainties, it seems prudent to analyze the international investment landscape, watching for any signs of money movement and identifying potential risks and opportunities. The SIA Heatmap, a powerful data visualization tool, is an invaluable resource for identifying patterns, trends, and anomalies within large datasets. This tool, accessible via the SIA platform’s Markets/Indices tab, provides a graphical representation of market data where values are depicted using colors, making it easier to spot market trends. The Heatmap allows users to adjust the time duration to see short-term or long-term patterns, offering a clear view of market performance across different countries and sectors. It is a great starting point for reviewing the international investment environment, especially in times of geopolitical turmoil when markets can be volatile and unpredictable.

Taking the analysis one step further, we have the incorporated the SIA Country Heatmap ETFs into a portfolio and analyzed them using a custom relative strength matrix, scaled at 4%. This provides a clearer view of the performance of various countries relative to one another. The results reveal that Argentina has emerged as the top relative performer, with the Global X MSCI Argentina ETF (ARGT) showing a YTD performance of 61.62%, making it the standout market of 2024. Following closely is the U.S. equity market, which has been firmly positioned at the top of the list with a YTD return of 29.15%. On the opposite end of the spectrum, South Korea’s performance has been poor, with the Franklin FTSE South Korea ETF (FLKR) showing a negative YTD performance of -12.32%. Other countries at the bottom of the list include Mexico, Indonesia, Saudi Arabia, and Brazil, with the Franklin FTSE Brazil ETF posting a particularly poor performance at -22.24% YTD. On the other hand, China shows signs of recovery, as both the Franklin FTSE China ETF (FLCH) and the Franklin FTSE Hong Kong ETF (FLHK) have moved up in the rankings over the past quarter. Notably, countries such as Canada and Turkey have also seen positive momentum, with the Franklin FTSE Canada ETF climbing 11 positions in the past quarter and delivering a YTD return of 19.03%. Meanwhile, the iShares MSCI Turkey ETF has moved up 10 positions and has a YTD return of 16.46%. Japan, represented by the Franklin FTSE Japan ETF (FLJP), has also been making a comeback, gaining 14 positions in the relative strength matrix over the past quarter. For more in-depth analysis on Japan, the December 4th edition of the Daily Stock Report offers insights on the BMO Japan Index ETF (ZJPN).

As we turn our attention to South Korea, it’s essential to analyze the performance of the Franklin FTSE South Korea ETF (FLKR), given the negative geopolitical and market developments surrounding the country. The ETF’s performance has been consistently poor, and from a technical perspective, it remains deeply entrenched at the bottom of the SIA International Equity Universe ETF Report, currently sitting at position #487 of 491. This low ranking has persisted since the end of 2022, following a significant drop in relative favor. From a charting perspective, support levels for FLKR are currently found at $17.62, $16.93, and further down at $15.04, with a deeper support level at $11.86. Resistance is at the 3-box reversal level of $20.24, a level that extends back to 2019, with additional resistance visible at $22.34 and a 2024 high at $23.25. These technical levels indicate a challenging outlook for the South Korean market in the near term, especially given the geopolitical volatility and the broader market trends. SIA practitioners should be cautious of the risks associated with this region and monitor any developments closely. While the situation may improve over time, current data suggests continued caution, particularly for those considering South Korea as a potential investment destination.