International markets

The international developed markets were muted during the fourth quarter with the Russell Developed Large Cap ex-North America Index up just 2.3%. The returns were further muted by the dollar reversing its most recent trend in the fourth quarter, strengthening against most of the major currencies with the notable exception of the British Pound and the Canadian Dollar. One of the major differences between the domestic and international markets in the fourth quarter was the drivers of returns. Where the major driver in the U.S. was the Technology sector, that sector actually had negative returns for the quarter overseas. The international markets were led by Materials and Consumer Staples names. The individual country leaders were the Norway Index (+15.3%), Singapore Index (+8.9%) and the United Kingdom Index (+6.4%), while the Greece Index (-19.6%) was the major drag due to significant turmoil in that country's financial markets. The emerging markets however bested all of the domestic indexes in the fourth quarter up nearly 8.0%, and turned in the best year in the Russell Emerging Markets Index's history, up 78.9%. There was strength across the board in the emerging markets as most countries in the Russell Emerging Markets Index had returns in excess of 20% for the year and many were in the 60-90% range, in local currency terms. In addition, the dollar continued to fall against most of the emerging market currencies, including a whopping 57% against the Brazilian Real. The managers we spoke to were generally bullish on the emerging markets, noting the average emerging market consumer has seen job opportunity and wage growth and has little debt. This positive outlook is somewhat muted as the market over the course of 2009 has priced in a substantial recovery for 2010 already, and valuations are not as inexpensive as they were a year ago. Nathan Behan is a senior investment analyst at Prima Capital Holding Inc., a provider of investment research, technology and portfolio design to the wealth management and retirement industries.