A cross-market study of U.S., Japanese, South Korean and Hong Kong equities found that holding several national markets did not reliably prevent steep losses during periods of global stress, even though each market delivered markedly different returns and risk profiles over the past decade.
Using U.S.-listed, dollar-denominated ETFs with total-return adjusted prices since 2016, the review compared SPY for U.S. equities, EWJ for Japan, EWY for South Korea and EWH for Hong Kong. Its central finding was that portfolio construction and risk controls had a greater effect on drawdowns than simply adding country exposure, particularly when correlations rose during market shocks.
The results carry relevance beyond equities for cryptocurrency traders who use geographic stocks, technology spending, interest rates and dollar conditions as indicators of broader risk appetite. The study does not establish that digital assets will follow the same performance path as equities, but it shows how quickly diversification benefits can shrink when capital moves out of risk-sensitive assets simultaneously.
U.S. and Korean equities led returns with sharply different risk
SPY generated the strongest risk-adjusted results among the four ETFs over the full period. The U.S. equity fund produced a 14.95% annualized return, according to the study, with annualized volatility of 17.73%, a maximum drawdown of 33.72%, and a Sharpe ratio of 0.88.
EWY, the South Korea vehicle, nearly matched SPY’s annualized return at 14.87%. Its path was far less stable. The ETF recorded 29.42% annualized volatility and a maximum drawdown of about 49.73%, leaving it with a lower Sharpe ratio of 0.62.
That gap reflects the different composition of the two markets. U.S. equities have been supported by large technology companies and capital spending tied to computing infrastructure, while South Korea has substantial exposure to semiconductors, global manufacturing and exports. Those links can create strong upside during a technology and trade expansion, but they also leave Korean equities more exposed when demand forecasts weaken or chip-cycle expectations turn lower.
Japan’s EWJ delivered an 8.77% annualized return and a 33.14% maximum drawdown. The study connected its performance drivers to corporate-governance reforms and the country’s evolving monetary-policy environment. Hong Kong’s EWH lagged the group, posting a 4.66% annualized return, 19.44% volatility, a 42.71% maximum drawdown and a 0.33 Sharpe ratio.
Hong Kong’s returns were shaped by China-linked earnings prospects as well as dollar-based financial conditions. Because the Hong Kong dollar is linked to the U.S. dollar, shifts in U.S. monetary policy can have a more direct effect on local financing conditions than in markets with freely floating currencies.
Currency and common factors complicate country allocation
The review cautioned against treating country ETFs as cleanly separate bets. Markets can share the same underlying exposure even when they trade in different time zones and currencies.
U.S. technology investment and Korean semiconductor earnings, for example, can be driven by the same global hardware and computing cycle. Japan and South Korea both depend heavily on international manufacturing demand. Hong Kong’s equity market remains closely connected to China’s credit conditions, property outlook and domestic demand.
These overlaps help explain why correlations typically climb during a crisis. When liquidity tightens and traders reduce risk across portfolios, country diversification can provide less drawdown protection than it did in calmer periods.
Currency translation adds another layer for dollar-based holders. A local stock-market gain in Japan or South Korea can be partly or fully offset if the yen or won weakens against the dollar. The study said any assessment of overseas equity returns should separate local-market performance from the foreign-exchange effect rather than treating the dollar result as a pure measure of company earnings or market valuation.
Valuation comparisons also require caution. Differences in sector composition, capital costs and accounting structures mean that headline multiples do not always identify a clear bargain or overvaluation across markets.
Trend rules delivered the smallest drawdown in the tests
The study tested three systematic allocations against a buy-and-hold position in SPY. Each model used next-day execution after a signal and assumed one-way trading costs of 10 basis points.
An equal-weight portfolio rebalanced monthly to 25% in each market. An inverse-volatility strategy used trailing 60-trading-day volatility, with no market allowed to exceed a 50% weighting. A third strategy ranked momentum over 10 months at month-end, held the two qualifying assets above their 200-day moving averages, and kept the remaining allocation in cash.
The inverse-volatility method lowered annualized volatility to 16.68%, compared with SPY’s 17.73%, but its annualized return fell to 11.08%. The result illustrates the trade-off in mechanically reducing exposure to more volatile markets: smoother performance may come at the cost of missing some of the strongest advances.
The trend-rotation model returned 12.1% annualized, below SPY’s full-period 14.95%, but reduced maximum drawdown to 24.27%. Its Calmar ratio, which compares annualized return with maximum drawdown, reached 0.50. The system’s average annual turnover was about 491%, a level that makes trading costs, execution quality and taxable events central considerations in real-world use.
In the post-2021 sample, the trend model produced a 15.06% annualized return and a 23.52% maximum drawdown. SPY returned 14.82% over the same period with a 24.50% drawdown. Equal weighting and inverse volatility lagged, with annualized returns of 11.55% and 10.66%, respectively.
IMF outlook frames different regional channels
The International Monetary Fund projected in July 2026 that global output would grow 3% in 2026 and 3.4% in 2027. Its forecast put U.S. growth at 2.3% for 2026 and China’s at 4.6%.
Those estimates support a backdrop in which regional equity markets could continue to respond to distinct economic channels rather than a single global narrative. U.S. corporate spending on technology remains especially relevant to American large-cap equities and Korean chipmakers. Japan’s market faces a separate mix of currency movements, domestic policy normalization and corporate reform. Hong Kong remains especially sensitive to the trajectory of Chinese profits and credit demand.
The proposed baseline allocation in the study — 40% U.S., 20% Japan, 20% South Korea and 20% Hong Kong — included quarterly rebalancing and a 50% cap on any single market. It also applied a momentum and moving-average filter that would halve an allocation when a market fell below its 200-day average while showing negative 10-month momentum.
The framework is more useful as a demonstration of disciplined risk budgeting than as a mechanical template for cryptocurrencies. Digital assets trade continuously, often carry greater volatility, and can react to liquidity shocks faster than equity ETFs. Yet the study’s evidence on correlated selloffs reinforces a practical lesson for traders: assets that appear unrelated during rallies can become tightly linked when global financing conditions deteriorate.
To navigate cross-market equity risk more effectively, explore advanced allocation tools with Toobit’s tokenized equities guide today.
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