By Tony Barrett
Many market commentators agree that the current environment leaves limited room for anything but equity exposure. However, current equity valuation levels might give cause for concern among some investors.
The consensus view is that there is further room left for equity growth and substantial equity exposure within portfolios is strongly recommended. But, where in the world do you invest in equities? Recently the business news agency Bloomberg ran an article which delved into this dilemma and, in the process, gave investors some interesting food for thought.
Quoting from a recent Bank of America report, Bloomberg's informative chart (PDF) shows that despite recent rockiness, US stocks have enjoyed a good run over the past year. But the big winner (when comparing in US dollar terms) was India.
The Wall Street Journal noted India’s performance - along with that of the Philippines and Thailand - in a late-2014 article (Asia Stock Indexes Among World’s Best Performers in 2014), which noted that “declining oil prices have also been a positive for Asia, especially big energy importers like India and China, while it has pressured stocks in other emerging regions, including Russia and the Middle East”.
The data certainly highlighted that it takes a brave investor to go for an asset class like Russian equities, which went from hero status in the year-to-date returns to virtual zero at 55th status in the weekly numbers.
The stats also showed that the clear losers across all periods were Greek equities; although that’s no big surprise. German stocks, said Bloomberg, have also lagged when priced in US dollars, largely due to the weakening euro.
According to information from the London-based World Federation of Exchanges (WFE), one of the world’s largest financial services trade organisations, 2014 showed a strong increase in equity trading volumes (of +17.4%) to US$81 trillion from 2013’s figures.
The WFE noted that all regions were affected by this increase to a relatively similar extent: +18.9% in Asia-Pacific, +17.4% in Europe, the Middle East and Africa and +16.5% in the Americas.
In its annual Statistics Market Highlights report, the WFE highlighted the main trends over the past year as:
In light of the Bloomberg figures, and these WFE performance statistics, one thing is sure: For South African investors, trying to pick winners from virtually obscure markets is a recipe for disaster, and a sure way to lose money over the long term.
Note how the global equity index is a consistent top quartile performer. Over the past year, South African equities, as measured in US dollars, have come in 16th place overall. The return difference between the top performers and the relegation threatened candidates is truly remarkable, a positive 30% to a negative 66%, that is a swing factor of close to 100%.
What lessons can be learnt?
The big wide world of potential investment destinations should not scare off potential South African investors. They should rather decide on a strategy and investment plan and then stick to it. Greed and fear are always big drivers in terms of psychological behaviour of investors; don’t get caught up in this conundrum, but rather seek professional advice.