The bulls are running all over the world, and not just in the U.S. (or in Pamplona, Spain).

Most of the world's markets are currently in a bull market, and international investing has been paying handsome dividends to investors since 2003, according to our models.

Judging from the latest output from our models, this trend shows no sign of abating.

Looking at the underlying issues to gauge whether this situation can continue reveals that even if the U.S. economy slows, the international stock markets look set to continue their gains.


Consider the use of carry trades. These can occur in various ways, but the one we want to focus on is when investors borrow from countries with low interest rates and lend to countries with higher interest rates.

The dominant carry trade for the past decade has been the Japanese carry trade, whereby investors borrow in the low-yielding yen and invest in the higher-yielding U.S. dollar or euro. The key to profitability is for the yen not to rally sharply at any given point in time.

In the past, the dollar has been the favored currency to invest in. However, with any evidence of a slowing U.S. economy, investors will increasingly take money off the table allocated for the U.S. markets and place it in foreign markets, including some emerging markets, to chase higher yields.

So the Japanese carry trade will still exist, but the funds borrowed in yen will be converted and lent to other currencies away from the U.S.

Top-Rated International ETFs
Name Rating 1-Month Return 3-Month Return Year-To-Date Return
iShares MSCI Singapore (EWS) A+ 2.84 8.77 19.55
iShares MSCI Australia (EWA) A+ 1.81 12.56 19.4
iShares MSCI Netherlands (EWN) A+ 1.88 11.71 15.32
iShares MSCI Pacific ex-Japan (EPP) A+ 1.83 9.36 15.25
iShares MSCI Sweden (EWD) A+ 2.21 11.17 13.14
iShares MSCI EMU (EZU) A+ 3.29 8.68 13.13
iShares MSCI France (EWQ) A+ 4.36 9.17 11.98
iShares S&P Europe 350 (IEV) A+ 2.63 6.57 10.27
iShares MSCI Spain (EWP) A+ -1 3.09 8.82
iShares MSCI Austria (EWO) A+ 0.55 6.57 7.92
Data as of 05/17/2007
Source: Ratings, Bloomberg

To further assist in gauging the economic health of the countries mentioned above, we have included a table of general macroeconomic statistics below:

International Fundamentals
Country GDP Growth (%) Inflation (%) Internal Budget (as % of GDP) Deificit/Surplus 10-year Interest Rate
Singapore 6.00% 0.70% 6.00% 28.50% 2.63%
Australia 2.80% 2.40% 2.30% -6.00% 5.90%
Spain 4.00% 2.40% 1.10% -7.40% 4.36%
France 2.00% 1.30% -2.20% -1.60% 4.35%
Netherlands 2.80% 1.80% -0.30% 6.30% 4.34%
Austria 3.20% 1.50% -1.40% 1.20% 4.35%
Sweden 4.70% 1.90% 2.20% 6.00% 4.16%
Source : Bloomberg
Sam Patel, CFA, is the manager of mutual fund research for the Ratings.

In keeping with TSC's Investment Policy, employees of Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

While Patel cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.