A Chinese rendering of jusqu’ici tout va bien courtesy of Bloomberg:
The chief China strategist at Bocom International Holdings Co. points to soaring price-to-earnings ratios, the shrinking yield advantage that stocks offer over bonds and the fact that mainland-listed equities now trade at a 34 percent premium over nearly identical shares in Hong Kong.
So what’s Hong’s advice to investors?
Keep buying, of course.
Sentences to remind us of the nuttiness of Chinese equities over the past few months from BNP Paribas’ Richard Iley (and yeah, the Shanghai Comp fell 0.8 per cent today we have to admit, but that just broke “a 10-session winning streak — the longest in 23 years, according to Bloomberg data — that had taken the index to its highest since May 2008″):
Against all odds, the best performing asset class on the planet over the last nine months or so has been Chinese equities. After languishing for the first seven months of 2014, Chinese stocks have since been on an incredible tear, ending 2014 up a remarkable 49% in USD terms, even outstripping the c.28% annual return posted by Bunds (Chart1). And the strong gains have continued so far in early 2015. Up almost 12% in USD year-to-date at time of writing, Chinese equities continue to sit atop the heap of global asset returns. All told, the Shanghai and Shenzhen markets have surged almost 80% in local currency terms since mid-2014 (Chart 2).
Yes, yes… “必有牛市” – “There must be a (dynastic) bull market”. Read more
These came out yesterday courtesy of BofAML’s 2015 look at looong term trends in financial markets by Harnett and Leung…
The obvious place to start:
And the obvious place to continue, asset prices: Read more
Biggest fall in five years that, even if it’s still up 35 per cent this year. Might be time to talk about the potential consequences of all this, no? Read more
Nice from Simon Rabinovitch at the Economist:
One middle-aged man, Mr Xu, had come to meet a manager to inquire about how to subscribe to initial public offerings; their average first-day gain has been about 40% this year. He said he had taken the afternoon off work for the meeting and could hardly conceal his glee. “I’ve been trading since 1992 (just two years after the Shanghai Stock Exchange was established) and I guarantee you this bull market will last,” he said. He confessed to getting badly bruised by the last big one – his portfolio of 500,000 yuan had swollen to 3 million yuan by 2007 at the peak of the market, before falling back to its original level.
At the other end of the spectrum in terms of experience was Ms Zhou, 25, an interior designer with dyed-blonde hair. Like many other young professionals, she had previously put a big chunk of her savings in an online investment fund marketed by Alibaba, an e-commerce company. The fall in interest rates has reduced the return on that fund, pushing her to look for alternatives. “I had been thinking for a while about buying stocks but I had to travel for work and missed the best opportunity,” she sighed. “I will be conservative at first. Just one or two thousand yuan. Or maybe ten thousand.”
Which says a lot about the mechanical nature of this “super-bull” run. There’s simply quite a bit of money in China and a limited number of places for it to go. Once one is found… Read more
Consider this from Gavekal’s Chen Long on the run up in China’s A-shares:
Charts. Do stop us if you’ve heard this one before.
Unless we’re mistaken, Goldman has come up with its own “This is nuts” top ten. Decent effort:
1. Since the low in the global equity market on March 9, 2009, the MSCI The World index has risen roughly 180% in total return terms, generating an annualised return of a remarkable 20%.
2. 2013 was one of the strongest years on record for the equity markets. The US managed a price return of 30% and the Sharpe Ratio of the S&P 500 ranked in the 98th percentile since 1962.
3. Perhaps even more striking is that bond markets have continued to perform strongly. Since the 2009 low in equities, the JP Morgan GBI global bond index has risen 24%.
1,823.06 -54.64 (-2.91%)
- at pixel. DJIA off by a similar margin. What to say? Let’s fall back on charts…
Had to share. It’s doing the rounds by email…
The original title of this post read: What do you call a stock market crash that only lasts half an hour? Read more
Looking at the sea of red in the markets over the past two days, it is easy to be disheartened. The Dow Jones Industrial Average fell 334 points and the broader S&P 500 was down 2.066 per cent, matching the fall in Germany’s Dax 30 at pixel time.
It is worth putting the fall into context, even if valuation, complacency and the scale of crowded trades all suggest good reasons for concern. Over the past 50 years, the market’s been down this far in a day 289 times, or almost six times a year. It is nasty, but on this basis it looks normal. Read more
In which Citi look for the next Apple, our emphasis:
Apple’s valuation has been through a spectacular round-trip over the past couple of years (Figure 2). Its total market cap first broke through $600bn in August 2012, but then collapsed to $341bn in April 2013. Since then, the recovery has been equally remarkable, moving back above $600bn in the past month. In the process, it has regained the title of the world’s most valuable company ($187bn ahead of Exxon at number 2). To put this in context, Apple has lost and then regained the value of the Russian stock market in just two years.
The narrative associated with this spectacular journey often focuses on the never- ending pressure for Apple management to maintain the company’s product pipeline. A lower share price reflected concerns that Steve Jobs’ midas touch had been lost. The subsequent rebound was associated with increasing conviction that it had not.
If you buy this…
… keep reading. Read more
Your recent flight to safety and the pain of carry trades in the face of Ukraine and the FOMC, charted and worded by Hartnett and BofAML:
Looking at total returns, stocks and bonds are up around 4% year-to-date while commodities are down 1.4%. But since July 16th, the day prior to the downing of flight MH17, the US dollar has outperformed all major currencies, cash has outperformed all major asset classes (see Table 1) and the only equity markets showing gains are China, Kazakhstan, Saudi Arabia & Egypt. Of particular note, the combination of a geopolitical flight to quality and concerns about the end of the era of excess liquidity appears to have caused the three big “carry trades” of 2014, high yield bonds, European peripheral bonds and EM debt, to be “carried out”
From Goldman on the state of European corporate investment… or what happens when a yield hunt meets corporates who are running out of investment ideas:
That uneasy feeling when everything is going well. Is it deserved? Can it last? Should you cash in and go paint watercolours in that studio on the Pembrokeshire coast?
Strategists are not immune, with a summer bout of the temporaries upon us. Goldman is the latest, downgrading its view of stocks over the weekend but without really committing to it:
We also downgrade equities to neutral over 3 months. We are concerned that a sell-off in government bonds will lead to a temporary sell-off in equities in line with what we saw last summer, though the magnitude is likely to be smaller as the need for bond yields to correct is lower than it was back then.
When your bet is on policy certainty in India, maybe it’s time to reevaluate that bet…. From BofAML:
Ignoring the risk-love silliness, we think this means a whole load of policy certainty has been priced into Indian markets ahead of the Modi-led BJP’s presumed victory in the just finished elections. From BofAML again: Read more
We’re fans of The Reformed Broker. Reluctantly, sometimes. But fans nevertheless.
So we should just note that a Josh Brown post from Wednesday, looking at the relentless growth of passive asset management and its effect on equity markets has, quite simply, gone viral.
In fact, if you are a market professional and it’s not in your inbox already this morning, you are a failure.
To save your blushes, here’s the link to the original, here’s Josh’s follow up, and here are some choice quotes to memorise quickly… Read more
A new year is a new country, so far as the investment prognostication world is concerned. What will people do with their clean slates, we wonder?
Buy equities is a strong contender. It appears to be what retail investors finally did last year after years of revealing their preference for bonds, and they aren’t done yet. If you don’t believe us, well, we have charts… Read more
One-year total return of the Athens stock index, to the end of October 2013: +50%
One-year return of the Bloomberg Greece Sovereign Bond Index, same period: +134%
One-year net return of Dromeus Capital’s Greek Advantage Fund: +107%
Yep — FT Alphaville hears that the first-year performance of Dromeus Capital’s Greece-focused fund would make it one of 2013′s best-performing, having already made a strong start at the beginning of the year.
It’s another indicator of how much both Greek equities, and the sovereign’s restructured debt, have recovered this year… Read more
*CISION: RECEIVED FINGERPRINT RELEASE FROM CONTACT AT FINGERPRINT
That would be the release announcing a $650m acquisition of Fingerprint Cards by Samsung, which – regrettably – has turned out to be completely made-up, and possibly a matter for the Swedish authorities. Read more
OK, hands up. We did not pay attention in March when Canadian securities regulators proposed to tighten rules for when investors must disclose their activities to the rest of the market.
The CSA is still considering, and the Globe and Mail reported on Monday that it’s not just activists who are wary. However, what has belatedly caught our notice are some excellent ideas from ISDA about derivatives disclosure, which could also be relevant south of the border. Read more
This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.
Gavyn Davies recently had an interesting take on stock prices in the US. Davies made the point that the profit share in the US had risen substantially against the wage share in recent years, and then argued that this rise in the profit share is what currently underpins equity prices. Read more
Time for a rush into Gold? Nope. Read more
“Does the Stock Market Gender Stereotype Corporate Boards? Evidence from the Market’s Reaction to Directors’ Trades.”
Does this title of a recently published study by a group of researchers at the University of Exeter make you think:
A. Hmm, “gender stereotype”. That’s wordy.
B. Oh boy, what’s the media going to do with this one… Read more
Here it is Goldman’s big call: the S&P 500 will reach 1,750 by the end of this year; 1,900 in 2014; and 2,100 in 2015.
H/T Josh Brown, who points out this isn’t about earnings but a re-rating of equities (and dividends). Read more
Yes, we know it’s not new, but the divergence between stock markets and commodity prices is now looking extreme. Consider this chart from Julian Jessop at Capital Economics…
1.) Steal headline from Lorcan. On Twitter.
2.) Multiple choice test to decide your condescending lede!
Question: When a fake (hacked!) Associated Press tweet about a White House attack moves the stock market down, then it recovers really fast — but maybe not making anyone much money — this is a referendum on the credibility of:
b) Associated Press
c) The stock market
d) How FT Alphaville makes a living
e) All of the above
f) None of the above, shut up and get off Twitter
Isn’t that the big question here?
Given that this story — about the auditor firing a partner over “providing non-public client information to a third party, who then used that information in stock trades involving several West Coast companies” — has now slammed straight into the Herbalife story. Read more