Global Investing

Another fine excuse for selling stocks

There is no question that the losses on stock markets at the moment are primarily the result of the Greek crisis. A downgrade of a euro zone country’s sovereign debt to junk is enough to make all but insane mainstream investors take a large step away from risk.

But could it also be that the Greek crisis has come at a time when big investors were looking for an excuse to cool down the equity rally? MSCI’s all-country world stock index hit a peak on April 15 that was not only higher than anything seen this year, but also last year as well.  Up about 85 percent from its March 2009 lows, in fact.

Partly as a result, there were some signs emerging that suggested a correction would soon be in the works.

– Morgan Stanley noted that one of the indexes it follows had been up at least 50 percent year-on-year eight times in March. History showed that on 77 percent of such occasions that equity markets had subsequently fallen 4 percent.

– Bank of America Merrill Lynch’s April fund manager survey saw cash holdings had dropped to 3.5 percent of assets.  On four out of five occasions that that has happened before, BofA said, equities declined by 7 percent in the following 4-5 weeks.

Eight days could point to a correction

Morgan Stanley has been crunching some numbers about Europe and come up with something that (not surprisingly) fits their scenario of  a near-term stock correction but only within a longer-term cyclical bull market for equities. It all comes down to eight days in March, apparently.

Here is the gist:

During 8 days in March, MSCI Europe was up (more than) 50 percent year-on-year.  This is a rare event, has happened on only 80 individual days since 1919.  It is a bullish signal on a 12-month view, a cautious signal on a 6-month view.  On average, the next 12 months  the market has been up 10 percent, up 96 percent of the time, the next 6 months down 4 percent, down 77 percent of the time

As for timing of the correction, MS says it will be when good economic news becomes bad market news sometime in Q2. That is to say, when a string of positive economic data prompts  central banks into a policy reaction or when markets react by sending bond yields and inflation expectations up.

Time up for emerging markets?

Well, not in the long-run, no. You would be hard pressed to find an economist, investor or even politician who does not reckon the global shift in growth to Asia and Latin America is going to be the story of the coming decade, century etc.

But in the shorter term, strange things are happening. MSCI’s benchmark emerging market stock index is barely in the black for the year. Even more surprising is that it is underperforming its developed market counterpart.

Many  economists and investment strategists are still beating the drum for emerging markets and a Reuters European Funds Summit in Luxembourg this week heard numerous cases of retail investors beginning to move into the sector, joining their institutional brethren.

Do southern Europeans know something?

Slightly strange data from Deutsche Börse. Its latest survey of what top European executives have been doing shows increasing signs of optimism.  That is, management board and supervisory board members and their families have been buying shares in their own companies.

All well and good. But the strangeness kicks in when it becomes apparent that a lot of this buying has been done by the top people in the south.  Of 10 companies listed for the largest insider buying, seven were from southern Europe. Of the top sells,  seven were from more northern climes.

Deutsche Börse notes this — “After Spain posted high purchase volumes last month (January), Italy has now awakened from hibernation” — but gives no particular guidance.

Poor investor confidence – or is it?

The latest State Street investor confidence index bears some scrutiny. The overall index dropped in February which would seem to be in line with other sentiment indicators such as The Conference Board’s consumer confidence index and the German Ifo on business thinking.

But the State Street  fall was entirely due to bearish Asian sentiment. There were gains in the North American and European regional calculations. Also the overall, North American and European indices all came in above 100 — which means that sentiment remains on the bullish side.

It begs the question of whether Asia is a) lagging b) leading or c) just out there on its own.

from Global News Journal:

‘Stop me before I bet again in Singapore’

A performer holds over-sized deck cards in front of the Resorts World Sentosa casino Feb. 14 (REUTERS/Pablo Sanchez)

SINGAPORE-CASINO/At least 264 people in Singapore have asked to be put on a list that would prevent them from entering the city state's newly opened casino. Except for nine housewives and 19 unemployed people, the rest had jobs and probably families that they did not want to hurt with a gambling problem. Family members who think a relative might have a gambling problem can also apply to have them banned.

 The $4.7 billion Resorts World Sentosa opened on Feb. 14, Valentines Day and the first day of the Chinese New Year, which was considered auspicious. It is the first of two casinos resorts (and a Universal Studios theme park) that is meant to help transform Singapore from a manufacturing and shipping center to a global hub city built on financial services and a playground for wealthy visitors. This is quite a change for a country often called the "nanny state" because of its many prescriptions and prohibitions, famously for instance, banning chewing gum for its irksome tendency to land up on sidewalks and onto people's shoes.

No one flying to safety yet

Reuters asset allocation polls for January are out and — perhaps not surprisingly — show global investors cutting back a bit on stocks. That would be expected given that world stocks are heading for a negative month and the likes of emerging markets have had a few days battering.

What was perhaps most interesting, however, was the fact that the pull back was not accompanied by any flight to safety. Both bond and cash allocations also fell slightly. The money went into other assets such as property and hedge funds.

Conclusion? No one is panicking. Some, such as Charlie Morris of HSBC Global Asset Management, even reckon that January’s pull back is nice and healthy, taking the froth off the market.

from MacroScope:

Britain heading for rude awakening?

 UK_DFTEZ0110

 

There is a divisive election ahead for Britain, the threat of a ratings downgrade on its sovereign debt and a deficit that has ballooned into the largest by percentage of any major economy.  UK stocks, bonds and sterling, however, are trundling along as if all were well. What gives?

For a fuller discussion on the issue click here, but the gist is that all three asset classes  are being support by factors that may be masking the danger of a broad reversal. UK equities have been driven higher by the improving global economy, bonds held up by the Bank of England's huge buying programme and sterling by valuation and the distress of others.

But with the Bank of England's buying spree due to end soon and the possibility that UK voters won't give a clear victory to either the Conservatives or Labour, meaning political stalemate, is this set to change?

A black swan in the desert

Just when investors were settling down to lock in a few of the year’s profits and put their feet up for the end of the year holidays, a black swan has come waddling out of the desert to put everything on edge.

The unwelcome cygnus atratus came in the form of Gulf emirate Dubai telling creditors of Dubai World and property group Nakheel that debt repayments would be delayed.  Fears of contagion spread widely, hitting world stocks, lifting the dollar out of its basement and driving demand for European debt so much that a roughly 6-month trading range for futures was breached.

It all may settle down soon. Dubai says the problem does not apply to its big international ports group.  Meanwhile, the emirate is a pretty leveraged place, but fellow emirates and neighbouring countries such as Abu Dhabi, Qatar and Saudi Arabia are pretty flush with cash. They could even step in to help as a matter of solidarity.

Good news and bad in investor confidence data

Good news and bad in the latest  investor confidence sounding from State Street. The overall index took a dive again — third month in a row — and is now barely above neutral. That’s the bad news if you are keen to see risk assets do well.

The good news is that despite three months of falling the index is still above 100, showing that risk appetite remains present among the U.S. financial services firm’s institutional investor cllients, albeit only just.

But add to that State Street’s findings that the fall in its global index was almost entirely due to Asian investors. The regional indices for North America and Europe both rose.