Summit Notebook

Exclusive outtakes from industry leaders

from Global Investing:

BRIC: Brilliant/Ridiculous Investment Concept

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BRIC is Brazil, Russia, India, China -- the acronym coined by Goldman Sachs banker Jim O'Neill 10 years back to describe the world's biggest, fastest-growing and most important emerging markets.  But according to Albert Edwards, Societe Generale's uber-bearish strategist, it also stands for Bloody Ridiculous Investment Concept. Some investors, licking their wounds due to BRIC markets' underperformance in 2011 and 2010, might be inclined to agree -- stocks in all four countries have performed worse this year than the broader emerging markets equity index, to say nothing of developed world equities.

For years, money has chased BRIC investments, tempted by the countries' fast growth, huge populations and explosive consumer hunger for goods and services. But Edwards cites research showing little correlation between growth and investment returns. He points out that Chinese nominal GDP growth may have averaged 15.6 percent  since 1993 but the compounded  return on equity investments was minus 3.3 percent.

But economic growth -- the BRIC holy grail -- is also now slowing. Data showed this week that Brazil posted zero growth in the third quarter of 2011 compared to last year's 7.5 percent. Indian growth is  at the weakest in over two years. In Russia, rising discontent with the Kremlin -- reflected in post-election protests -- carries the risk of hitting the broader economy. And China, facing falling exports to a moribund Western world,  is also bound to slow. Edwards goes a step further and flags a hard landing in China as the biggest potential investment shock of 2012.  "Yet investors persist in the BRIC superior growth fantasy...If growth does matter to investors, they should be worried that
things seem to be slowing sharply in the BRIC universe," he writes.

Thomson Reuters data earlier this year appeared to show some disenchantment with the BRIC concept. After rising 1600-fold between 2003 and 2007, assets in BRIC funds had shrunk to $28 billion by August 2011, almost a quarter below 2007 peaks, a bigger fall in percentage terms than most other fund categories.

Loose lips sink stocks

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    The president of Renaissance Capital — Russia’s largest home grown investment bank, a fiercely competitive institution which has now survived two crises — is not interested in publicly assessing the competitive landscape in Moscow’s financial sector.     Russia’s stock market was all but shut down in a single day by rumours of distress among brokers, sparked by the selloff of stocks held on margin or as collateral on repurchase agreements.     Operating often on whispers, brokers foreign and domestic slammed shut limits on each other, causing trade on the stock market to seize up.     The first victim — brokerage KIT Finance — was announced by evening and became the first financial instituation to receive a state bailout.      “The crisis has shown that rumours and gossiping about competitors is a very dangerous thing,” Renaissance Capital President Aganbegyan told the Reuters Russian Investment Summit almost a year later.

Audio – Everybody loves a winner in Vegas, baby!

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It seems that any sentence about Las Vegas, the people who work there or the stocks of the companies that run the big casinos ends better with the word “baby”. It’s almost like you can hear Frank saying it to Dino on their way into some smoky, after-hours cocktail party.

So, even though Bill Lerner, casino and gaming analyst at Deutsche Bank didn’t exactly end his comments on casino stock picks like Sinatra might have … well, it’s Vegas, baby!

Automaker stocks underperform

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Share prices for GM and Ford – the only components in the S&P 500 Auto index – have been underperforming the broad market for the past four years as sales began to slump and both automakers started to slash costs and cut costs — Source: S&P, Thomson Reuters Proprietary Research

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Demoplicans or Repocrats? A look at stock market performance and politics

Compiled by Thomson Reuters Proprietary Research Group

    There have been five terms out of the last 16 where the last year of the term has a negative return on the DOW, and four of those terms have been during a Republican president’s term. When we look at the previous 90 day returns before the new term, we see that the markets are generally positive (only four negative in the last 16 terms). Elections are generally held in the first week of November. When we take the previous 60 day returns before the new term (from Nov. 20 – Jan. 20), we see that the DOW returns are even more positive, with only two terms out of 16 preceded by negative returns in the previous 60 days. This says that the lack of uncertainty after the elections usually give a boost to the market. Only three four year terms have had negative returns. 1973-1981 (Oil crisis) and 2001-2005 (Dubya’s first term). On average, the 90 days before the new term performs much better (3%) than the 90 days after the new term starts (1.1%). The last three terms have started with negative returns in the first 90 days. Since WW2, the Dems have had 7 terms and the Republicans have 8 (excluding the 2005-2009 Dubya term). The Dems have done slightly better (8.3% vs. 6.7%) in terms of average annualized returns over this period. However, these numbers are skewed in their favor because of the Clinton-Bubble era.

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