(sorry I meant to post this yesterday, looks a bit optimistic by now!)
May has been a painful month, but the last week showed a degree of improvement, at least in equities. The S&P 500 Index in the US rose 1.7%, and the Eurostoxx 50 Index rose by almost 1%. Russia slipped a further 1%, but ended the week well off its lows, and China did the same. The currency market was more volatile, as the euro lost nearly two percent against the dollar, and gold lost 1.3%. The crisis continues unabated, but this week there are grounds for tactical optimism as markets are heavily oversold.
The immediate driver is Greek news, where the less radical parties appear to be gaining popularity. If the population is starting to see the choices as either exit the euro or continue with austerity, then there is clear ground to hope they will vote for the latter. Despite the rhetoric and the understandable angst, most Greeks remember that the drachma was not a kind currency to them. Greece has seen great gains since joining the euro, even despite its current troubles.
Finding profitable investment opportunities remains tricky. Emerging market stocks have been sold down to distressed levels. Investors understand that the a financial panic will bring far more selling, but in less catastrophic scenarios, these are appealing entry levels with exciting upside potential.
Russia is now trading at less than five times expected earnings for this year. Considering the recent improvements in dividend commitments (the index is now close to 4% dividend yield), the market should be trading differently. Russian stocks could go lower, in a global credit freeze, but there is little reason for them to stay lower. We would recommend picking up a few dividend stocks as a hedge against the European crisis stabilising in the short term. (Call us for some suggestions.)
China too is looking attractive. It’s earnings ratio is below 10, compared to a five year average of more than 15. Again, the market could go lower, but it already looks cheap. It is important to remember that, contrary to in the 2008 cycle, this time the Chinese economy is slowing because the government wants it too. And, in fact, policy has begun to reverse – the last actions were aimed at stimulating more growth.
Short-term equity targets make sense in this market, focus on quality stocks with low valuations and/or healthy growth paths. Gold targets also make some sense if you holding is less than 10%. The metal has well demonstrated its weakness as a safe-haven, but the risk-return profile is shifting more positive.
Best regards,
James
May has been a painful month, but the last week showed a degree of improvement, at least in equities. The S&P 500 Index in the US rose 1.7%, and the Eurostoxx 50 Index rose by almost 1%. Russia slipped a further 1%, but ended the week well off its lows, and China did the same. The currency market was more volatile, as the euro lost nearly two percent against the dollar, and gold lost 1.3%. The crisis continues unabated, but this week there are grounds for tactical optimism as markets are heavily oversold.
The immediate driver is Greek news, where the less radical parties appear to be gaining popularity. If the population is starting to see the choices as either exit the euro or continue with austerity, then there is clear ground to hope they will vote for the latter. Despite the rhetoric and the understandable angst, most Greeks remember that the drachma was not a kind currency to them. Greece has seen great gains since joining the euro, even despite its current troubles.
Finding profitable investment opportunities remains tricky. Emerging market stocks have been sold down to distressed levels. Investors understand that the a financial panic will bring far more selling, but in less catastrophic scenarios, these are appealing entry levels with exciting upside potential.
Russia is now trading at less than five times expected earnings for this year. Considering the recent improvements in dividend commitments (the index is now close to 4% dividend yield), the market should be trading differently. Russian stocks could go lower, in a global credit freeze, but there is little reason for them to stay lower. We would recommend picking up a few dividend stocks as a hedge against the European crisis stabilising in the short term. (Call us for some suggestions.)
China too is looking attractive. It’s earnings ratio is below 10, compared to a five year average of more than 15. Again, the market could go lower, but it already looks cheap. It is important to remember that, contrary to in the 2008 cycle, this time the Chinese economy is slowing because the government wants it too. And, in fact, policy has begun to reverse – the last actions were aimed at stimulating more growth.
Short-term equity targets make sense in this market, focus on quality stocks with low valuations and/or healthy growth paths. Gold targets also make some sense if you holding is less than 10%. The metal has well demonstrated its weakness as a safe-haven, but the risk-return profile is shifting more positive.
Best regards,
James
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