Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Posts Tagged ‘Equities’

Many happy returns: new data reveal long-term investment trends

Posted by hkarner - 6. Januar 2018

Date: 04-01-2018
Source: The Economist: Free exchange

Property yields more than shares and bonds; investment returns outstrip economic growth

DATA-GATHERING is the least sexy part of economics, which is saying something.

Yet it is also among the most important. The discipline is rife with elaborate theories built on assumptions that turned out to be false once someone took the time to pull together the relevant data. Accordingly, one of the most valuable papers produced in 2017 is an epic example of data-retrieval: a piece of research that spells out the rates of return on important asset classes, for 16 advanced economies, from 1870 to 2015. It is fascinating work, a rich seam for other economists to mine, and a source of insight into some of today’s great economic debates.

Rates of return both influence and are influenced by the way firms and households expect the future to unfold. They therefore find their way into all sorts of economic models. Yet data on asset returns are incomplete. The new research, published as an NBER working paper in December 2017, fills in quite a few gaps. It is the work of five economists: Òscar Jordà of the San Francisco Fed, Katharina Knoll of the Bundesbank, Alan Taylor of the University of California, Davis, and Dmitry Kuvshinov and Moritz Schularick, both of the University of Bonn. (Messrs Jordà, Schularick and Taylor have spent years building a massive collection of historical macroeconomic and financial data.) For each of the 16 economies, they craft long-term series showing annual real rates of return—taking into account both investment income, such as dividends, and capital gains, all net of inflation—for government bonds and short-term bills, equities and housing. Theirs is the first such data set to gather all of that information for so many countries over so long a period. Den Rest des Beitrags lesen »


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I Hate This Market, I Love This Market

Posted by hkarner - 26. April 2016

Date: 26-04-2016
Source: The Wall Street Journal

The plunge and then surge of commodity prices this year shows investors have spent more time watching each other than watching the fundamentals

In markets, as in life, a sudden fright can quickly be replaced by embarrassed laughter. The fear evident earlier this year has already been superceded by nervous giggling in Western equity markets, while in some areas of commodities, where the shock was deepest, it seems to have turned into full-on hysterics.

Anyone who bought back into commodities at their bottom in late January has been laughing all the way to the bank. By the end of last week, global mining shares had rebounded 75%, the strongest over a similar period since at least 1994, when data for the FTSE World Mining index starts. If that sounds like a lot, consider the frenzied trading in the previously obscure futures contract for steel reinforcing bars, or rebar, in Shanghai last week, where turnover was higher than on the entire stock market. Den Rest des Beitrags lesen »

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Are Equities Overvalued?

Posted by hkarner - 28. März 2015

Date: 27-03-2015
Source: Project Syndicate


Michael Spence, a Nobel laureate in economics, is Professor of Economics at NYU’s Stern School of Business, Distinguished Visiting Fellow at the Council on Foreign Relations, Senior Fellow at the Hoover Institution at Stanford University, Academic Board Chairman of the Fung Global Institute in Hong Kong, and Chair of the World Economic Forum Global Agenda Council on New Growth Models. He was the chairman of the independent Commission on Growth and Development, an international body that from 2006-2010 analyzed opportunities for global economic growth, and is the author of  The Next Convergence – The Future of Economic Growth in a Multispeed World.

MILAN – Since the global economic crisis, sharp divergences in economic performance have contributed to considerable stock-market volatility. Now, equity prices are reaching relatively high levels by conventional measures – and investors are starting to get nervous.

The question is whether stock valuations are excessive relative to future earnings potential. The answer depends on two key variables: the discount rate and future earnings growth. A lower discount rate and/or a higher rate of expected earnings growth would justify higher equity valuations. Den Rest des Beitrags lesen »

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American equities: the party may be over

Posted by hkarner - 21. März 2015

Date: 20-03-2015
Source: The Economist

American shares have enjoyed one of the greatest bull runs in history, with the S&P 500 index rising by more than 200% since the depths of the financial crisis in 2009. But as the economy picks up and the Federal Reserve begins to normalise interest rates, the going is getting tougher. Rising labour costs seem likely to squeeze margins. And the strong dollar is hurting American multinationals, which make much of their profits abroad. S&P 500 earnings are expected to decline by 5% in the first quarter of this year, compared with a year earlier. On this measure American firms will underperform European companies (the share prices of which are tracked by the benchmark STOXX 600 index). The weak euro is helping European firms, which are even more enthusiastic globetrotters than their American peers: their earnings are expected to grow by 5-10% in 2015. A shift in the corporate balance of power is coming.
share prices US

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The best and worst performing assets of 2013

Posted by hkarner - 2. Januar 2014

Date: 02-01-2014
Source: The Economist

INVESTORS who poured into equities last year may be sleeping in today after celebrating 2013’s bubbly returns. Returns on share prices (along with reinvested dividends) surged by 23% globally, the best performance in three years.

More cautious types who stuck to bonds and precious metals may have got up early to reassess their allocation strategies for 2014. Returns on government bonds shrank by 4% in 2013—the first decline in eight years—and the fall in the gold price was the biggest since 1981.

Worries that some euro-area members such as Greece might leave the club continued to prove unfounded last year, and those who invested in these countries were well rewarded whether they bought stocks or bonds. Punters in emerging markets would have had to be more selective, however. In Latin America, Argentine equities far outshone those of neighbouring Brazil and Chile, whereas in Asia and the Middle East, shares in Pakistan and Saudi Arabia surged while Indonesia’s and Turkey’s sagged.

Asset Performance 2013

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Signs of the Top

Posted by hkarner - 20. August 2013

John Mauldin, 18/8
What Are They Smoking?

The investment media seems obsessed with the question of whether the Fed will taper. The real question should be not about „tapering“ but about credibility. What happens when fundamentals become the narrative as opposed to what the central bank is doing? What happens if the Federal Reserve throws a liquidity party and nobody comes? Today we look at some of the fundamentals. The market is in fact overvalued, but that doesn’t mean it can’t become more overvalued. Is this August 1987 or August 1999?

Before we delve into that question, let me fix a problem. Last week I mentioned a great strategy paper authored by my good friend Jon Sundt, President and CEO of Altegris. I failed to include the link. Here is the link. I encourage anyone who is looking to diversify into alternative investments to read it.

Signs of the Top

We are told they don’t ring a bell when bull or bear markets start. That may be true, but it does seem that there are similar signs as we approach turning points. This week in my reading I have been struck by a number of signs that suggest that, if we haven’t reached a top in the latest bull market cycle, at least a pause may be in order. Let’s review a few of them. The first comes from Charles Gave, who notes that margin debt is now back to extremes.

I started in the fascinating business of trying to understand why markets go up and down in February 1971. The old money manager in the French bank which had hired me straightaway said: „Charles, you will never get rich in this business using other people’s money. Do NOT leverage your positions. Leverage might be all right for fellows who deal in real estate, but for those in stock markets, it only brings misery.“

Being young and smart (or so I thought), I assumed this advice could not conceivably apply to me. A few margin calls later, accompanied by quite a string of sleepless nights, and I came to realize that the old gentleman had a point.

Now that I am quite old myself and certainly not as smart as I thought I was in 1971, I find myself tracking the moves of the poor souls who believe they can leverage profitably. Then I do the opposite. This is why Charles the 70-year-old is watching what Charles the 30-year-old is doing—to do the reverse. Have a look at the graph.

The red line at the top is New York Stock Exchange margin debt as a multiple of US GDP per capita, the black line on the bottom pane is a ratio between US stocks and (government) bonds. It seems that the fellows using other people’s money to get rich have an uncanny ability to leverage up when shares become overvalued vs. bonds. They also seem to get most enthusiastic just before a recession, usually after a prolonged outperformance of equities against bonds. Den Rest des Beitrags lesen »

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Commodities: The end of the Holy Grail

Posted by hkarner - 5. August 2013

Anne-Laure Delatte, Claude Lopez, 4 August 2013, voxeu

Commodities are usually advertised as having the same returns and less volatility than equities. This column presents the results of a recent CEPR working paper showing that previous studies based on rather restrictive assumptions produced biased results that favoured commodities over equities. Using an alternative methodology, co-movement between traditional asset and commodity markets seems to be symmetric and occurs most of the time. What changes is the strength of the relationship. The returns of equities and commodities have become more integrated in the aftermath of the subprime crisis, a result that questions the diversification benefits of commodities.

Commodities are usually advertised as the ‘orthogonal asset class’ by the financial industry,1 based on the findings of several academic studies. Among the first, Gorton and Rouwenhorst (2005) show that commodity future contracts have the same average returns as equities along with a negative correlation, but present less volatile returns. In other words, commodities provide excellent diversification benefits because commodity returns grow when returns of bonds and equity decrease. Commodity futures are even to earn above average returns when equity earn below average returns. Several papers argue that the correlations between equity and commodity tend to fall in turbulent periods, an asymmetric pattern attributed to investors‘ flight-to-quality strategy (Chong and Miffre 2005).

These patterns have attracted a large number of financial investors seeking to diversify their portfolio (see Bichetti and Maystre 2012). The number of futures and option contracts outstanding on commodity exchanges has increased fivefold between 2003 and 2012 and investors with a motive of physical hedging represent now less than 30% of positions, according to the Commodity Futures Trading Commission. Den Rest des Beitrags lesen »

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Investing in Africa: The hottest frontier

Posted by hkarner - 5. April 2013

Date: 04-04-2013
Source: The Economist
Strategies for putting money to work in a fast-growing continent

Market Africa CCWHEN you are trying to keep a retail outfit afloat amid hyperinflation, it helps to have a sideline. “We had a business selling crocodile skins to Hermès and Gucci for shoes and handbags,” says John Koumides, chief executive of Innscor, a conglomerate based in Zimbabwe’s capital, Harare. The currency earned from this exotic export was a lifeline for the firm’s other arms, including its SPAR stores, when Zimbabwe’s shops were short of stock in 2008 as its currency collapsed.

Innscor survived. It remains an unwieldy mix of businesses even though it has shed the crocodile-skin enterprise. But it is attracting attention from investors seeking to profit from the emergence of a new class of African consumers: its shares have risen by 50% in the past year. The firm’s mainstay, and the bit that excites the most interest, is fast food, with brands including Chicken Inn and Pizza Inn. Its outlets are now in a handful of other African countries, including Nigeria. Den Rest des Beitrags lesen »

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Popular Delusions: The bull case for safe havens

Posted by hkarner - 1. Dezember 2012

John Mauldin | November 30, 2012
A month ago in Outside the Box, Dylan Grice made the case for the need for safe havens, due to expansive monetary policy. But what is a safe haven anymore?

In today’s piece, a follow‐up to last month’s, Dylan gives us a very good rundown on the historical relationship between equities and government bonds, in order to point out the very atypical current negative correlation between them. He then observes that … what constitutes the ‘safe haven’ changes over time. It’s important to remember not only that government bonds aren’t always the market’s safe haven, but that that there will always be a safe haven somewhere. For all the headlines about the billions wiped off stock market values during market routs, that money had to go somewhere. It doesn’t just disappear. It will go into whatever the safe haven is, which in normal times will be bonds.  But what happens when government bonds themselves fall victim to the primary ills of the day? Den Rest des Beitrags lesen »

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The China Effect

Posted by hkarner - 26. August 2009

from RGE Monitor:

Chinese Equities

The Shanghai composite index has fallen almost 20% from its August 4 peak, putting it within the traditional definition of a bear market. Thus far this year, however, the index has risen over 50%, and it has surged even more since its low in late 2008. Yet Chinese equities remain vulnerable given the liquidity outlook and the challenges of using relatively blunt tools to guide asset markets.

Correlations between Chinese and global equities (especially emerging market equities) have increased since 2007. Economies most reliant on Chinese investment, or on the commodities consumed by China, tend to show the most significant correlations. Yet even the markets of Central and Eastern Europe have shown greater co-movements. While Mainland markets are dominated by domestic investors and foreign investment is heavily restricted, they have vaguely led global markets, being among the first to begin to fall from overheated heights in early 2008 and the first to climb in late 2008 following China’s stimulus announcement. China’s linkages with global markets, to the extent that they exist, seem more macro than financial. The same government policies designed to avoid bubbles and limit further misallocation of capital—including the slowing of credit extension currently underway—could not only restrain frothy Chinese equities, some investors worry, but also suggest that the Chinese and global recovery will be weaker.
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