Global Diversification

Perspective: The MSCI World Equity Index is composed of:

• US = 57%
• Japan = 9%
• UK = 8%
• France = 4%
• Switzerland = 4%
• Canada = 3.5%
• Germany = 3.5%
• Australia = 2.6%

So when we focus on US markets, we are focused on the largest (by a significant margin):

Our equity models try to incorporate this global diversity (although, when fully invested, we may likely be a little overweight in Canada because of our proximity to some of the companies that we like to watch). However, we do try to guard against an overly "home country bias".

So what is going on in some of these markets?

The World Index:

• Made highs on May 18th at 77.35 and has been correcting since. Currently at 74.73, this is a correction of approx. 3.4%. 
• Trend-line support at approx. 73.50-60 is important: if it falls below this level, it may encourage more selling and lower prices.

US:

• S&P 500 moved further below trend-line support on Friday after the Employment Data was released.
• We would expect to see some buying support at or about 2040-50 and below that at 1970-80.
• Respectively, corrections of 4.5% and/or 7.7%.

Japan:

• Japanese equity prices remain close to their highs and until selling emerges, the up-trend remains. Buying support at the trend-line at 19870 is important for the trend to remain intact.

UK:

• UK equity prices have broken down through the up-trend support level and have corrected approx. 4.5% from the highs. Next buying support level at 6700 would represent a 6% correction.

France:

• The CAC 40 has also broken down through the up-trend line support, currently a correction of 7.3% from the highs.

Also:

• The Swiss market has corrected by 9% from its highs.
• the German DAX is down 10%.

Closer to home:

• The TSX has also slipped below, its trend-line and will look for buying support near 14,600.

• Australia has corrected by 7.5%

Summary:

Markets in Europe and the UK are correcting, significantly, but only beginning to (at this point) in North America.

Japan has not yet begun to correct, Australia has also been correcting significantly.

We have remained (and still do) cautious about adding money to equity markets in our client portfolios and this strategy has been working.

We shall remain cautious, expecting that North America will follow the trend lower and ultimately Japan will as well.

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