Against the Odds: How Argentina and Turkey Delivered Superior Stock Returns
U.S. exceptionalism is all the rage, but U.S. stocks weren’t the only big winner in 2024—or even the biggest.
With all the talk of the Magnificent Seven, stock bubbles, and the Trump Trade, it’s easy to believe that the U.S. markets crushed every country in the world this year. Not quite. The champion by a long way was Argentina, whose Merval stock index nearly tripled in value. The S&P 500
rose a mere 25%. Three other emerging markets outperformed the S&P: Turkey, Hungary, and Taiwan. So did Israel, which graduated to developed-market status in 2010.
These aren’t necessarily the countries casual news readers would pick to be this year’s big winners. They aren’t necessarily the best bets longer term. They also come with a considerable asterisk: Local indexes reflect local-currency gains, which can be offset for dollar investors by devaluation. The iShares MSCI Turkey exchange-traded fund advanced a modest 9%, compared with 31% for the local-currency index.
Still, there’s a lesson here for a financial world increasingly driven by passive funds and quantitative formulas. Correct bets on which way the wind is blowing can still earn outsize profits. Argentina and Turkey were those bets in 2024. Argentine President Javier Milei took over a basket case in December 2023. His budget-slashing shock therapy tamed hyperinflation and built up currency reserves, without the widely feared rioting in the streets.
In Turkey, veteran leader Recep Erdogan changed course himself after winning another presidential term in May 2023. His new economic team has jacked up interest rates to 50% and clamped down on subsidized credit to wring out inflation, which he had stoked with ultra-loose money.
Neither country is close to stable prosperity. But both have pulled themselves out of tailspins. “I make my money when a situation goes from hopeless to a little less terrible,” comments Edward Al-Hussainy, senior currency analyst at Columbia Threadneedle Investments.
Taiwan had a bumper year for a different reason: super-concentration of the semiconductor and artificial-intelligence-adjacent stocks that outperformed globally. Information technology companies make up nearly two-thirds of its stock market, according to iShares, with foundry king Taiwan Semiconductor Manufacturing accounting for more than 20% all by itself.
Israel had tech and geopolitics on its side. IT accounts for about 35% of market cap, led by companies like Check Point Software Technologies and CyberArk Software. Stocks also benefited from investors’ perception that the war in Gaza could be winding down and the civilian economy normalizing, enabling those tech stars to catch up with global peers. Israel’s TA-125 Index jumped 20% in the second half of 2024.
Another 2024 takeaway: Cheap valuation can still drive returns. Germany is Exhibit A. The economy remained mired near recession. Industrial icon Volkswagen signaled the first domestic factory closures in its history. Chancellor Olaf Scholz’s fractious coalition government collapsed. Yet German stocks were cheap enough to advance 18% anyway. Investors snapped up perceived bargains in nonautomotive icons from Siemens Energy to Deutsche Bank and business software giant SAP. Hungary and the Czech Republic, Germany’s effective economic suburbs, did even better on an index basis.
There are lessons from the losers as well. Mexico was the world’s worst-performing major market this year in local-currency terms, with a 17% decline. Outgoing President Andres Manuel Lopez Obrador was largely to blame: He rammed through a crippling judicial “reform” during his last month in office and busted the budget on dubious infrastructure projects like the $30 billion-ish “Maya Train” in southern Mexico. Donald Trump’s election north of the border, with renewed threats to free trade with the U.S., didn’t help either.
Brazil was nearly as bad as Mexico in local-currency and much worse in dollar terms. Investors bailed as President Luiz Inácio Lula da Silva turned to smoke and mirrors on fiscal policy, and the central bank hiked interest rates again to ward off inflation.
Many investors have lost interest in international stocks after years of U.S. outperformance. That has made sense in a world of U.S. exceptionalism, especially if all international markets are lumped together. As Mexico and Brazil demonstrate, bad performers can always drag down the good ones. But with care, diligence, and a little bit of luck, there’s still good money to be made beyond U.S. borders.
You can bet on that.