Equity Market Returns - not so great, Globally over the long term!!!

A blog after a long time - 8 years I think!

I tried to put to test the theory that equity / stock market investment gives outsized returns over a longer duration (5years - 10 years or more).

Quite suprising returns, but again not so surprising - there are returns but not as outsized as made out to be.

Arbitrarily, I took 03-Mar-2000 as the starting date, and have compared returns for just under 19 years - till this last Friday (17-Feb-2019).

Interesting points:

France (CAC) is actually negative after 19 years! and most European markets have at best anaemic CAGR. Interestingly, US and India seemed to have given decent returns.

Disclaimer:
1. Does not take into account dividend payments
2. Is measured in local currency, so inflation, interest rates and currency exchange rates have an impact.

But I would have expected something ~8% CAGR for developed markets (Most pension funds use that statistic for computation and to entice you to invest in their funds). And somewhere ~15%+ for developing markets. No market of all those covered, lived up to those.

(Source: Google finance and index websites to find the prices on each of the days)

#EquityReturns #equity #globalstockmarkets#notsogreatreturns

INDIA: SIMILARITIES BETWEEN 1990-1991 and 2011-2012

India seems to be entering the 1990-1991 situation again and for the PM, then the FM of the company - this will be deja-vu.

A fiscal deficit which is balooning, a capital and current account deficit - inefficiency of the regulation (FRBM) coupled with high dependence on fleeting foreign investment (specifically FII not FDI) are weak links of the Indian sector.

Expect long funds to move money out of India and currency to depreciate causing a double whammy as deficit builds on further. Almost on the cusp of causing a balance of payment challenge in 2012.

Dr. Manmohan Singh will be facing the same challenges as in 1991 and will need to resolve to a similar solution

1. Fiscal responsbility and targetted, reduced subsidies

2. Focus on investment v/s expenditure by subsidies

3.  Encourage export growth

4. Liberalize the economy and cut the red-tape to increase FDI participation in key sectors.

In my opinion, sectors to benefit in 2012 are Retail (Pantaloon, Shoppers Stop), Capital Goods (L&T, Punj Lloyd), Export Sectors (IT - Infosys, Wipro, TCS and Textiles) and Insurance (ICICIBANK, SBIN, HDFC, HDFCBANK)
Avoid Oil PSU's especially downstream segment like plague - until rupee normalcy returns or government shows keenness to take strong action
Everything assuming government is forced to action from the current freeze situation

STAY BEAR

Equities, Real Estate and Commodities all seems stretched in India and globally given current income levels


Markets nearing crashing point. STAY BEAR, STAY CASH. If anything,spread money across currencies and between gold.

Only silver lining could be global liquidity splurge by Central banks co-ordinated and RBI cutting interest rates by more than expected for local reason, 50 or even 75 basis points. Trade on the upside, do not invest. Fundamentals remain weak

HOLD CASH AND GOLD, AVOID BUYS

Central Banks are running short of policy tools and have reverted to direct liquidity infusion, and in a co-ordinated manner.
We seem to be entering a period of stagnation /deflation and all the monetary expansion will probably mask the data from a nominal standpoint for a few quarters - the medium term trend is painful

1. Simultaneous de-leverating of households, industrial sector and sovereigns will reduce global spending in real terms
2. Reduction in growth, in real terms, will mean painful contraction of incomes (for individuals, corporates and sovereigns) and lead to painful defaults where any of the entities are not able to pay due to increasing interest demands (rising risk profile) and reducing incomes
3. Sovereigns are introducing liquidity measures to pump the markets with cash, will have a nominal effect and delay the trickling of real impact : Indebtedness cannot be solved by a liquidity push, it can delay the invetiable. The only solution to indebtedness is deleveraging or default.
4. Either ways it will be a difficult time swinging between sub-normal growth or inflationary pressures (caused by liquidity push by central governments). Hot money in-and-out, especially EMs and even DMs is a possibility, especially on the equity and commodity sides
5. Markets entering unchartered territory where for the first time sovereigns will have the same challenge as individuals and corporates earlier, and that too on a significant scale world-wide
6. Sovereign defaults will be more frequently talked about in the coming quarters and I presume, competitive devalution will resume - which has now slowed after an initial burst in 2008-2009
7. Expecting equity incomes to be -ve, unless if trading on volatility. Do not expect EM markets, espeically India to outperform given global macroeconomics, condition of infrasturcutre (especially power sector), slowing policy - making, shutdown of privatization, high interest rate scenario and falling rupee
8. Avoid NIFTY, stay in cash. I'd prefer GOLD.

Markets on Boil, Trade Upside, Invest on Sharp Correction

World market seems to be on an upsurage after the recent Eurozone announcements. However, all the announcements have done is pushed the can a few weeks to a few months down the road.

SYSTEMIC ISSUES ARE UNRESOLVED:
Systemic issues of high debt/GDP and reducing private consumption and public sector spend will contract economies widening Debt/GDP ratios. Both personal and sovereign balance sheets need to unlever. No long erm resolution is adopted:

• Resolution 1: Euro as a currency is de-valued to promote export promoted growth
• Resolution 2: Weaker sovereigns are banished out of the Eurozone in a systemic way and stronger governments recapitalized the banks with help from China/Mid-East, Other hungry investors
• Resolution 3: No nominal devaluation, but increased inflation supported by current low-interest rates regime to devalue in real terms
• Resolution 4: Sharp correction in prices of basic raw materials [Hydrocarbons, Metals, Crops] in dollar terms [Unlikely unless BRICS enter recession]

Since none of the resolutions are adopted in completeness, a solution seems elusive. However, by partially defaulting and partially recapitalizing the banks - the can has been pushed further down the road.

TRADING CALL: Trade on momentum of euphoria, go long but exit on profiting. Keep strict trailing stop-losses.

INVESTMENT CALL(Indian Market):

• PSU Banks starting to look lucrative (Check exposure to Real-Estate, Power Sector before investing.Any bank low on both these sectors is a good investment candidate even at current prices).
• Avoid commodities and real-estate.
• Infrastructure (Roads) seems good to buy when the current euphoria ends and corrections begins (down 15% from current levels).
• I am still undecided on Infrastructure (Power), with DISCOMS struggling and delays in generation sector. Will need to research a bit more.

Greece is not Lehman!

Greece is not the new Lehman! Please... no one tried to save Lehman failing!! Everyone is pretending to save Greece, but only buying time to prop-up the real chance of zone failure - Spain and Italy. The EU leaders know well enough that once Greece defaults, all attention will fall over to Spain and Italy which are too big to be defended the same way. Everyone just kicking the can down the street and making it that much more difficult for Greece to recover....All efforts will eventually fail and move over to recapitalizing French and German banks. For now, however, Greece is the pawn between the real chances of Euro failure and the carrot to an IMF style recovery (Has that ever worked with a structural loan cycle situation before, however?) Oh YES: Forgot to add: Continue to remain bearish for the medium term, irrrespective of short bouncebacks. Structural problems remain.

Continue to be bearish... respect short team bouncebacks, but medium term outlook remains unfavourable

Continued with bearish mode on the market, though more circumspect after the recent fall. Expecting an immediate bounce-back for NIFTY tomorrow given the US bounce-back later today. However, remain bearish on the market from a medium-term perspective. Unusual how none of the economists are using the 'D' word or the 'S' word... For people in countries like Greece, Italy, Spain - the real economy is almost entirely in a Depression mode with reduced consumption, excessive and abrupt tax-cuts and reduction in investment leading to sharper contraction. Add countries which might not be (or will not be in future) a part of Eurozone and it could lead to chaotic inflation exercised by currency devaluation (e.g. Countries in Mid-East, South-East Asia) For now, most of developed world seems to be in a Stagflation mode --- technicalities might be modified maneovured to attempt defy this. But that is what the median of the population is really experiencing. From a medium to long term perpsective, this might cause basic materials (Metal, Oil, Coal) to correct, but for now... bearish on equities in the short to medium run and bearish on developed market fundamentals, emerging market fundamentals with debts > 90% of GDP and bearish on leveraged balance sheets!