International Markets in Turmoil

Geopolitical risks are on the rise again with weakness in European markets due to the intense negotiations around the potential exit of Greece from the European monetary union. The negative performance of the Greek stock market reflects the uncertainty about the outcome of the negotiations:

In addition to Greece, the sudden and dramatic selloff of Chinese stocks has the potential to destabilize international markets. A-shares, which are traded in Mainland China at the Shanghai and the Shenzhen Stock Exchanges, are impacted the most, while shares in Hong Kong are holding up relatively well:

As the result, most Fidelity mutual funds that invest in international markets are no longer trending higher. Examples include the Southeast Asia Fund (FSEAX), the Emerging Markets Fund (FEMKX) and the Diversified International Fund (FDIVX):

In our previous article we wrote about the potential of the natural resources sector to further rally and to provide market-leading results in 2015. Unfortunately the selloff in the Chinese market, which is a major consumer of commodities, caused an unexpected reversal. The chart of the Select Natural Resources Fund (FNARX) shows the sudden reversal of the emerging bullish trend:

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Avoid European Stocks Until the Euro Stops Falling

On January 22nd, the European Central Bank announced the start of its Quantitative Easing (QE) program that will involve a larger than expected 60 billion Euro asset purchase per month. The Fidelity Europe Fund (FIEUX) responded with a rally, but it has not yet cleared the resistance level (see blue line on the chart):

At the same time, the Euro continued to drop against the dollar, which explains why European stocks are less attractive in U.S. Dollar terms:

The picture is completely different if we look at European equities in Euro terms. This chart shows a very bullish break out:

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Monster Rally in European Stock Markets

We highlighted the iShares MSCI Spain Index ETF (EWP) in our August 21 blog entry, as one of the investments to watch in the fall of 2012. EWP continued its great performance in the last few days with an increadible 5.78% gain today in response to the stimulus program announced by the European Central Bank.

The Fidelity Europe Fund (FIEUX, last change: 2.51%) has proven to be an even better investment in the last 8 weeks. Unfortunately, FIEUX has not made a new 52-week high yet.

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International investing: Spanish stocks come alive

Both the iShares Spain ETF (EWP, last change: 1.38%) and the iShares Italy ETF (EWI, last change: 0.94%) broke above their respective down trendlines and show increasingly bullish action. Should this move gain momentum, investments in European markets can outperform investments in Asia and Latin America for the rest of 2012.

 

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Can European stocks recover in the fall?

Surprisingly, the Fidelity Europe Fund (FIEUX, last change: 1.05%) has moved up to the number six position on our momentum screen and has returned 11.41% in the last three-month period. Speculation about the possible exit of Greece does not seem to curb appetite for European shares. We are still on the fence about being all-out bullish on European stocks until FIEUX can break out above its 52-week high.

 

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Market sell-off resumes

The stock market pulled back to its trading range, towards the recently established support level. The banking sector and European funds were hit especially hard.

Fidelity Spartan 500 Index fund (FUSEX), down 2.52%

Fidelity Select Banking fund (FSRBX), down 4.37%

Fidelity Europe fund (FIEUX), down 2.58%