Global Investing

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.

Not terribly helpfully, but again not surprisingly, MS doesn’t know exactly when this will be.  Could be some way off, it says, because of loose money and mixed economic data. But then again, it says it could be imminent because of potentially peaking leading indicators and sentiment indicators suggesting investor complacency.

So, as the expression goes in England,  you pays your money and you takes your choice. When has it even not been thus?

Revisiting March lows

No, not in the way you think. Tuesday marked the one-year anniversary of world stocks hitting what appears to be their post-financial crisis low. The index was the MSCI all-country world index. The low was hit on March 9, 2009.

At the time, many investors reckoned their world was collapsing. Stocks had fallen close to 60 percent in a little more than 16 months. But the low proved to be the start of a remarkable rally that brought the index back up 80 percent until January this year.

All is not well on equity markets at the moment, given worries about European debt, the end of special central bank liquidity programmes and questions about the sustainability of the U.S. economic recovery.  The MSCI index seems to be having a hard time staying in positive territory this year.

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.

The art of being passive

Hundreds or even thousands of  ”active” fund managers are competing to add alpha to beat benchmark indexes, be it in stocks, bonds or alternatives.

water

The market is so efficient, historical performance is no guide to the future. It’s nearly impossible to find a reliable method to pick advisers who deliver the best industry returns year in and out. There are also costs, from visible ones such as management fees and custody and administration expenses to “below water” costs such as trading commissions (due to higher turnover), bid/ask spread (price to buy, another to sell) and market impact costs (larger buy/sell orders affecting price).

Given this, is there a point in investing in active funds? What about just diversifing your assets through passive indexes?

from MacroScope:

Greek Contagion: One Hell of a Tail Risk

The crisis of confidence in Greece's fiscal health has dented U.S. equities, though not enough to compromise a budding American economic recovery. Even a significant slowdown in European growth prospects might have limited immediate impact on the United States. However, that benign backdrop could vanish, economists at Morgan Stanley say, if the Greek situation were to turn in to an outright credit crisis.  They call it the "contagion tail risk":

While the retreat in risky assets in the past few weeks is not yet a headwind for growth, it is hardly a plus.  If the crisis spills over into broader risk aversion and a drying up of liquidity — the functional equivalent of the US subprime crisis — the consequences could be more dire.

JP Morgan, for its part, notes that it's not just Greece investors need to worry about.

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.

It’s the exit, stupid

Ghoul

Anyone wondering what ghoul is most haunting investors at the moment could see it clearly on Tuesday — it is the exit strategy from the past few years’ central bank liquidity-fest.

Germany came out with a quite positive business sentiment indicator, relief was still there that Greece had managed to sell some debt a day before, and Britain formally left recession – albeit in a limp kind of way.

But what was the main global market mover? It was China implementing a previously announced clampdown on lending.

XL-sized gains for 2009′s best performing U.S. stock

The S&P 500 has closed out its first annual advance in two years, underpinned by strength in the technology and materials sectors on hopes that the economic recovery will spur a rebound in capital spending and fuel demand for natural resources.

The benchmark index ended 2009 up 23.5 percent on the year, reversing a slide of 38.5 percent in 2008. The S&P 500 is now off 28.8 percent from its October 2007 record close.

The run-up in sectors like technology underscores the extent of the damage done to financial stocks in the credit crisis of 2008. Financials were once the largest sector in the S&P 500, but tech is now the biggest. The top 10 S&P 500 stock performers of 2009 do not include a major U.S. bank. Heading the list is Bermuda-based insurer XL Capital.

Who were the investment winners and losers in 2009?

Let’s not beat about the bush: the winners in this year’s investment stakes were those who cashed out early in the financial crisis, looked at hugely oversold stock markets in March and jumped back in. The losers were those who spent too much time thinking about it or, worse, thought it was a good idea to put all their money in Dubai stocks and  Greek government debt.

For the winners, it all had to do with market timing. Buying MSCI’s emerging market stock index at its March 3 low brought gains of close to 110 percent.  It was “only” a bit above 72 percent for the full year. World stocks as a whole gained around 30 percent for the year and nearly 75 percent from the March low.

Gold bugs grabbed a bit of the spotlight because of the record nominal highs for the metal. But with a gain for spot gold of around 24 percent, you would have done much better buying oil, which gained more than 75 percent.

Time to kick Russia out of the BRICs?

It may end up sounding like a famous ball-point pen maker, but an argument is being made that Goldman Sach’s famous marketing device, the BRICs, should really be the BICs. Does Russia really deserve to be a BRIC, asks Anders Åslund, senior fellow at the Peterson Institute for International Economics, in an article for Foreign Policy.

Åslund, who is also co-author with Andrew Kuchins of “The Russian Balance Sheet”, reckons the Russia of Putin and Medvedev is just not worthy of inclusion alongside Brazil, India and China  in the list of blue-chip economic powerhouses. He writes:

The country’s economic performance has plummeted to such a dismal level that one must ask whether it is entitled to have any say at all on the global economy, compared with the other, more functional members of its cohort.