The Short View: Eternal sunshine of investors’ minds
The Short View: Eternal sunshine of investors’ minds
By Philip Coggan, Investment Editor
Published: May 11 2006 17:05 | Last updated: May 11 2006 17:05. Copyright by The Financial Times
Like the cast of Monty Python, investors seem determined to “always look on the bright side of life”. Wherever one turns, asset prices seem to be hitting some kind of multi-year or all-time high.
In many countries, small cap stocks have already regained all of the ground lost after the bursting of the dotcom bubble and moved on to new peaks. Now the indices of larger stocks seem to be joining in. The Dow Jones Industrial Average is within touching distance of a record high and the MSCI All-Country World Index reached a new peak in intra-day trading on Monday.
In commodities, copper, aluminium, zinc and nickel have all reached record levels this week, while gold is repeatedly setting 25-year highs. Corporate bond spreads have dropped back close to the multi-year lows set in March 2005, while emerging market bond spreads are also narrow by historical standards. Only in the government bond markets have we seen any kind of retreat.
It is not too hard to find the reason. Global economic statistics have been looking very strong, although the last few pieces of data from Germany have been rather disappointing. Corporate profits have also been buoyant, hitting a multi-decade high as a proportion of GDP in the US. As yet, neither the long process of monetary policy tightening in the US nor the stubborn refusal of oil to drop below $70 a barrel seem to have done much damage to the global economy.
It is at times like this that contrarian commentators start to get nervous. James Montier, the Dresdner Kleinwort Wasserstein strategist, is most concerned about emerging markets. He points out that emerging markets have risen 225 per cent since 2003, while developed markets are up 87 per cent. Emerging markets now trade on a valuation discount to developed markets of just 15 per cent, half the post-1995 average.
Furthermore, US mutual fund investors are putting three times as much money into emerging markets as they were in 1993, just before a series of crises in the sector. On average, when mutual fund investors are investing heavily in emerging markets, subsequent three-year returns have been 1.7 per cent; after they have sold, three-year returns have been 15 per cent. The omens do not look good.
philip.coggan@ft.com
By Philip Coggan, Investment Editor
Published: May 11 2006 17:05 | Last updated: May 11 2006 17:05. Copyright by The Financial Times
Like the cast of Monty Python, investors seem determined to “always look on the bright side of life”. Wherever one turns, asset prices seem to be hitting some kind of multi-year or all-time high.
In many countries, small cap stocks have already regained all of the ground lost after the bursting of the dotcom bubble and moved on to new peaks. Now the indices of larger stocks seem to be joining in. The Dow Jones Industrial Average is within touching distance of a record high and the MSCI All-Country World Index reached a new peak in intra-day trading on Monday.
In commodities, copper, aluminium, zinc and nickel have all reached record levels this week, while gold is repeatedly setting 25-year highs. Corporate bond spreads have dropped back close to the multi-year lows set in March 2005, while emerging market bond spreads are also narrow by historical standards. Only in the government bond markets have we seen any kind of retreat.
It is not too hard to find the reason. Global economic statistics have been looking very strong, although the last few pieces of data from Germany have been rather disappointing. Corporate profits have also been buoyant, hitting a multi-decade high as a proportion of GDP in the US. As yet, neither the long process of monetary policy tightening in the US nor the stubborn refusal of oil to drop below $70 a barrel seem to have done much damage to the global economy.
It is at times like this that contrarian commentators start to get nervous. James Montier, the Dresdner Kleinwort Wasserstein strategist, is most concerned about emerging markets. He points out that emerging markets have risen 225 per cent since 2003, while developed markets are up 87 per cent. Emerging markets now trade on a valuation discount to developed markets of just 15 per cent, half the post-1995 average.
Furthermore, US mutual fund investors are putting three times as much money into emerging markets as they were in 1993, just before a series of crises in the sector. On average, when mutual fund investors are investing heavily in emerging markets, subsequent three-year returns have been 1.7 per cent; after they have sold, three-year returns have been 15 per cent. The omens do not look good.
philip.coggan@ft.com
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