Where to put your money? Emerging markets like Brazil, Russia, India and China seem to be losing their shine on political uncertainty, lower commodity prices and concern that the U.S.’ subprime crisis is spreading outward. At the same time, the Eurozone economy contracted 0.2 per cent in the second-quarter – not so much because of the credit crunch but as higher energy costs squeezed consumer spending. Meanwhile Japan is off 0.6 per cent. Is it time to take another look at the U.S.?
Some investors seem to think so. The S&P is now “outperforming” indices in the so-called Bric countries (down 12 per cent instead of Brazil’s 15 per cent, China’s 54 per cent and Russia and India’s circa-20 per cent). Trading in put options on the Chicago Board Options Exchange Volatility Index (which tends to move inversely to shareprices) are also rising.
Long-term investors flocking to the U.S. should be wary however. U.S. equities are still overpriced according to certain valuations based on cyclically-adjusted PEs and Tobin’s Q – meaning there may be further downside.
So where’s a long-term safe haven? If we knew we’d start a hedge fund like this guy.
Further reading
Lex on falling Brics – FT
Russian underperformance – FT Alphaville