Global Investing

Whoops!

Just how much have world stocks suffered in the past year or so? Try this. According to the World Federation of Exchanges, the market capitalisation of global stock markets has halved. It was $63 trillion in October 2007. At the end of January this year it was only $31 trillion.

 

It has all been more furious than most people can recall as well. When the internet-stock bubble burst at the beginning of this decade, MSCI’s all-country world stock index lost around 51 percent of its value from peak to trough. In the latest drop, the index fell 58 percent from an all-time high in November 2007 to a new cycle low yesterday.

 

And it has been fast. The internet-stock bubble decline took slightly more than 30 months. The current fall has taken only 16 months.

from Raw Japan:

Whither the yen — a withering yen?

The yen's fall against the dollar the past few weeks has been remarkably fast, and calculated from where it is now around 97.70 yen, the dollar has jumped nearly 9 percent this month, on track for its biggest such gain since August 1995.

The yen surged last year as the worsening financial crisis forced investors to unwind risky carry trades - meaning they had to buy lots of yen - under the belief that Japan's economy and banks were holding up through the storm.

Only last month, the yen hit an over-13-year high of 87.10 per dollar. So why has the Japanese currency fallen so fast?

Ignoring the drumbeat?

Reuters released its February asset allocation polls today, showing an ever so slight increase in average holdings of stocks. The signficiance, however, was not in the small increase but in the fact that there was no decrease. February has not been kind to riskier investments, with a drumbeat of poor economic news combining with new fears about banks to send global stocks to fresh six-year lows.

Dig inside the various polls — they come from the United States, Britain, Japan and continental Europe — and you find different moods. Three-quarters of U.S. managers polled, for example, made no change at all in their allocations over the month. Europeans, meanwhile, are so gun shy that they are holding more than twice as much cash as their long-term average. Japanese investors were a bit more optimistic than a month earlier, apparently because fears of deep trouble in China are easing.

What it all says is that investors are generally sticking to the sidelines, but are not being particulary spooked by continuing bad news. So is that the bottom? Or maybe familiarity breeds contempt?

from Funds Hub:

Great expectations

It was the outcome most commentators were expecting.

rtx9j4vEven Roger Lawson of the UK Shareholders' Association, which represented 150,000 small investors, admitted it was "not totally unexpected".

But the defeat for hedge funds RAB Capital and SRM Global and other former shareholders claiming damages for the loss of their holdings in Northern Rock when it was nationalised last year is nevertheless a hard blow to bear.

The former shareholders may appeal, but a valuation of the equity at zero or close to zero is now looking entirely possible.

from Funds Hub:

Light at the end of the tunnel?

rtxb5afThere's no shortage of bad news in the financial world at the moment.

But one top hedge fund manager believes that equities could soon be heading for a very sharp rally.

Cazenove's Neil Pegrum -- whose fund made 9.4 percent last year while markets were plummeting -- believes UK equities could soon be enjoying a "March 2003" rally.

While it seems a long time ago now after the market's recent woes, March 2003 marked the start of a 4-year bull market which took the FTSE 100 from less than 3,300 to more than 6,700 and saw clever stockpickers reap huge rewards.

Words matter less

Colin McLean, Managing Director of SVM Asset Management, has done striking research on how much positive spin corporates can put in their annual report.

McLean analysed an annual report of a British life insurer in 2007. The report contained the following words:

underperform 2
disappointed 0
bad/worse/worst 8
poor/poorly 1
weak/weakness 5
challenges 7
————————–
achieve/achievement 85
good/better/best 150
excellent 15
grow/growing/growth 207
improve/improvement 73
strong/stronger/strength 150

For better or worse?

Wealth managers at Citi Private Bank are telling their clients to stay neutral in their exposure to hedge funds at the moment, whether the strategy be event driven, equity long/short or macro. The main reason is that capital markets are still stressed and many hedge funds still need to deleverage.

The firm points out, however, that hedge funds had a good news-bad news kind of year in 2008. Based on the HFRX Global Hedge Fund Index, it was the worst performance on record. The index lost 23.3 percent. Its next worst performance was 2002 — and that was only a 1.5 percent decline.

Losses were widespread across all kinds of strategies. Only merger arbitrage and systematic macro gained anything. 

Who gets the last laugh?

Public critisicm may be heating up against banking executives being rewarded with huge bonuses despite taking too much risk (especially ex Merill Lynch head John Thain who requested a bonus and spent $1,405 on a garbage pail during a $1.22 million renovation of his office).

However, there are smaller fish who are being rewarded after doing something similar — taking too much risk and choosing the wrong bank in which to put their deposit. We’re talking about those who deposited in the collapsed Icelandic bank Landsbanki.

Around 300,000 British savers had accounts worth some 4 billion pounds in Landsbanki’s online savings provider Icesave, which offered competitive interest rates of up to 7-plus percent.

Dead cat bounce?

New year can get in the way of understanding what is happening on financial markets. Just because humans measure the year in 12 month tranches, it does not necessarily follow that markets do. Consider world stocks, for example. MSCI’s all-country world stock index is often cited as having fallen 43.5 percent in 2008. In fact, long-term investors’ losses were a lot worse. From an all-time high on November 1, 2007, to a low on November 28, 2008, the index fell 56.2 percent.

Something similar is happening at the moment. Investors might be focusing on year-to-date losses of around 5.7 percent for the index, but they are doing better than that. The index has gained 14.5 percent from that November 28 low last year.

What is your interpretation? 1) The credit crunch crash lasted for 12 months, hit bottom on November 28 and stocks are now recovering or 2) We have just had a dead cat bounce.

from MacroScope:

Political poster child?

George Alogoskoufis is a hardly a household name outside Greece and EU financial circles. But the newly sacked Greek finance minister could yet become a poster child for politicans struggling to fight off economic decline and banking industry collapse. His demise was in large part due to a public perception that he was helping out the banks but ignoring rising joblessness.

Greece, of course, is a special case at the moment, still recovering from riots over the police shooting of a teenager. But finance ministers, central bankers and other responsibles are probably not immune from Alogoskoufis Syndrome. Balancing the need to bail out the finance industry with rising economic misery among everyday people is not easy. Fat cats are not exactly in favour at the moment.

This could, indeed, come to a head later in the year. Investment cycles tend to recover before economic ones. So what happens when Wall Street, the City and the like start bringing in the money again just as unemployment lines start getting even longer?