US-based Citigroup attracted the attention of hundreds of people within minutes of it posting messages on social networking platforms Twitter and Facebook last night about banking services on Facebook.
"If you could do your banking on Facebook - Would you?," Citi asked on its official Twitter and Facebook pages, evoking mixed reactions from the public - ranging from a straight 'no' to certain "yes" and also comprising of many guarded replies expressing concerns about safety issues.
While Citibank was non-committal on whether it was actually planning to offer banking services on Facebook, most of the replies to its message asked whether it would be secure to conduct banking transactions through a social networking platform like Facebook.
The message was posted by Citi on its global Facebook and Twitter pages, but most of the comments appeared to have come from Indians.
Citi is known for having brought many innovations into the world of banking, including the advent of 24X7 banking through ATMs and various other smart banking offerings.
However, it seems to have lost the race to India's largest private sector bank, ICICI Bank, when it comes to offering banking services through Facebook.
Earlier this year, ICICI Bank launched its Facebook banking application, through which its customers can carry out a number of banking related tasks such as checking account details, getting account statements, upgrading debit card and cheque book enquiry.
Also, it claims that checking account through the 'ICICI Bank App' on Facebook is completely safe and secure due to features such as "Secure SSL connection, two-factor authentication process (and) activity details not (being) published on Facebook Wall."
"There is no charge for this application. ICICI Facebook banking application is totally secured. All communication between the app and ICICI server is encrypted. No data is stored on Facebook. All communication is secured and encrypted," the bank says.
As part of the security features, registration is subject to Debit Card and PIN authentication and access to application is subjected to separate PIN authentication generated by the user.
It goes on to claim that a customer's account details would remain secure even if the Facebook ID is hacked.
"Since your account data is not stored on Facebook, your bank account is completely safe. Even if your Facebook ID is hacked, the hacker will not be able to access the application unless you have shared your application password with the hacker," ICICI Bank says on its Facebook page.
( Press Trust of India )
The continued weak performance of the US and European economies, under a backdrop of deleveraging and insufficient demand, invokes comparisons to Japan as a guide to what might be expected over the course of this decade in the western developed world. Gerard Minack from Morgan Stanley has written an interesting note which highlights the similarities, and some differences, in the growth path of the three economies which provides an useful tool to analyse potential future scenarios for the US and European economies.
To summarise:
To summarise:
-The first clear similarity is that the three economies have suffered from a bursting of a credit bubble and are now dealing with the aftermath – an extended period of deleveraging. This process is made more difficult with a declining trend in nominal GDP growth (as the attached chart illustrates by making comparisons between the US and Europe and Japan at the same stages of Japan's cycle-a theme repeated in the comparisons below).
-The second-similarity is that fiscal stimulus works – Japan used fiscal stimulus repeatedly during the 1990s, having a subsequent positive impact on private spending (see chart below) . The sharper initial recovery in the US and Europe was due to a more aggressive initial fiscal stimulus in response to a larger initial downturn.
-It is the change in the cyclically-adjusted budget balance which provides the fiscal stimulus – and in this regard the US stimulus has been the most aggressive with the budget balance falling by 6% of GDP within a two year period, compared with about 3% for Japan and Europe (see chart below).
- However, US and Europe started with a weaker initial budget balance (a deficit versus a surplus in Japan) and a higher public debt than Japan and therefore now have less room. US and Europe are under pressure to tighten fiscal policy (Europe has already started ) and this could turn out to be the key differentiating factor from Japan (see chart below).
-Monetary policy has been much more aggressive in the US and Europe versus Japan, but deleveraging has blunted its effectiveness. Long-term bond yields are following a similar declining pattern as in Japan, and it has been dangerous to call a trough in yields . It is debatable whether this is due to central bank action or investor fears about a Japan like scenario unfolding, but the impact on equity prices has been somewhat limited.
-Unconventional monetary policy by the way of Quantitative Easing, was also followed more aggressively by the US and Europe than Japan (see chart below) . While these actions were effective in dealing with the initial liquidity stresses, they were less effective in stimulating economic growth and the US actually suffered steeper declines in money velocity (the speed with which money circulates in the economy) than Japan.
-Inflation has also increased more in the US and Europe than Japan as they experienced more rapid economic recoveries, after declining more rapidly during the initial phase as their economies contracted more (see chart below).
-Another reason behind the sharper rise in inflation in the US and Europe was the V-shaped recovery in emerging markets which lead to higher commodity prices. As global growth now falters, inflation could follow the downward trajectory in Japan.
-The current slow-down is more worrisome than in 2010 and 2011, as OECD leading indicators have fallen more rapidly (see chart below), with the scope for more aggressive policy action being limited due to zero-bound interest rates and the fiscal contraints mentioned earlier.
-Meanwhile, equity markets in the US have mirrored the swings in the economic cycle which bear a striking similarlity to the swings in Japanese equity markets.
Interesting insights provided by making the comparisons for key economic and financial indicators over the phase of Japan's cycle. Below trend growth in the 1.5% area for the developed world over the course of thsisdecade seems very likely, particularly given that policy makers in Europe and the US are reaching limits to further stimulative actions. This is particularly true of fiscal policy, which is more subject to the political divide in the US and the north-south divide in Europe. As I have noted in previous newsletters, this implies that centrla banks will have to do much more of the heavy-lifting via more aggressive quantitative easing policies. While the impact of QE policies on markets and economic growth maybe diminishing (see chart below) , its is (at this stage) the only game in town (and it works) and we can expect more novel methods of QE down the road (purchase, directly or indirectly through banks, of more risky assets). We are likely to get the first glimpse of such action in the next month or so as the global slow-down, and a resurgence of European worries, forces the hands of centrla banks. The implications for investors is to patiently wait for market corrections to add to exposure, and ligthen-up when markets get heady. This strategy is more relevant for developed markets, while emerging markets remain on a secular uptrend – though with cyclical downswings along the way.
I thought it would be uuseful to take stock of the peformances of major equity markets, and its interesting to note that the Indian stock market is the best performing market this year in local currency terms (up 13.4%-see chart below) after being one of the worst performers last year. The return in US$ terms is also a very respectable 10.2% which would make it second only to the Nasdaq! (the penultimate page of The Economist has a table which provides YTD returns in local currencies and US$ for all stock markets). China has underperformed, but I expect this to reverse during the second-half of this year as China begins to stimulate more aggressively. The Chinese real estate sector is likely to benefit signifcantly from the stimulus and valuations (see second chart below) are at historically attractive levels. Please note that, as the Mckinsey survey on urbanization noted last week, China is expected to account for about a third of the global increase in building space over the course of the next 15 years, totalling $25 trillion!
In this white paper, Rich Mattione, a member of GMO's International Active Division, takes an in-depth look at the problems Spain faces as it deals with its overwhelming debt burdens. He examines several facets of the Spanish economy while providing a comparison of Spain's current situation with other countries in the eurozone.
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Multibagger Stock Pick.... Sumedha Fiscal Services Ltd ( BSE: 530419) at 17/- target 39/-.Buy Sumedha Fiscal Services Ltd trading in BSE (BSE CODE: 530419) at 17/- in B Group. Target 39/- for short term. Safe investment at 17/-. Its good worth stock.
Sumedha Fiscal Services Ltd DoinG financial services Company incorporated in the year 1989. Company Stock Face Value is 10/- Book Value is 29/-, Equity 6 Cr. Company having Good Assets and Reserves. Every Year dividend Paying company.
Sumedha Fiscal Services Ltd preferential issued at 31/- now trading at 17/- and EPS is 5.5/- reserves 23 cr per share 35/- Div 8% to 10% every year.
Stock : Sumedha Fiscal Services Ltd (BSE: 530419)
CMP : 17/-
Target : 39/- /- in Short term
Equity : 6 Cr
Promoters Holding : 43% ;
Face Value : 10/-
EPS : 5.5/- for 2011-12 and 2012-13 Expecting 9/- as per the Expansion Plans.
Book Value: 34/-
Every Year Dividend Paying company.
Dividend History :
2011 --- 8%; 2010 --- 8%; 2009 --- 8%;
Dividend Yielding per Year 4.9%.
Company Profile :-
Sumedha Fiscal Services was originally incorporated by Shrimati Savita Maheshwari and
Mr. Manoj Kumar Agarwal in the year 1989 and is a long established player in the Financial Services Industry.The Company offers a wide bouquet of services ranging from Corporate Finance, Equities,Commodities, Insurance, Wealth Advisory, Portfolio Management, Personal Finance,Currency Futures, Investment Banking and Institutional Broking Services. The company is a well known name in the small and medium enterprises group for its investment banking activities & commands approx 80% of its revenue from Investment banking alone.Investment serves clients which includes corporate/institutions, high net worth individuals and retail.
Segments which comes under that are:-
Stock Broking :-
Sumedha Fiscal is the member of the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited both for Cash and Derivatives segment. SFSL are also members in the Currency Futures Segment of the National Stock Exchange of India Limited, thus providing opportunities in hedging and trading of currency derivatives to our clientele. SFSL are also empanelled with most of the major Financial Institutions, Asset Management Companies, Banks and Corporate Groups. In addition, they have had the privilege of serving over many individuals, many of whom are in the High Net Worth (HNI) category.
Commodity Broking :-
SFSL Commodity Trading Pvt. Ltd. is a member of MCX Commodities.
Depository Services :-
Sumedha Fiscal provides depository services being Depository Limited (NSDL). Another Important source of Income is corporate services, segments which comes under that are :-
Merchant Banking
Sumedha Fiscal ventured into Merchant Banking and registered as a Category I Merchant Banker by SEBI, which means company is authorized as to carry on the business of merchants of banking in all its aspects, to act as manages to issue and offer, whether by way of public offer or otherwise of securities, to act as administrators or managers of any investments, trusts or exempts funds, provident, pension, gratuity and superannuation funds, charitable funds, unit trusts or consortium to act as trustees for bonds holders, debenture holders and for other purposes herein.Company has proven track record in Lead Management, Private Placement and Issue Advisory Services. Company has a great association with internationally reputed Merchant Bankers, coupled with some close relationships with various Investors and Intermediaries
which help them to make Public Issues a success. Sumedha has been associated with several prestigious Public Issues as Lead Manager, Co-Manager and Syndicate Member, Member of National Securities
Loan / Debt syndication
In Loan / Debt syndication company take care of the entire transaction which involves Capital Structuring, Feasibility Study, Project Appraisal and Sourcing Funds. In addition to it, company has long term association with Banks and Bankers which provide a special edge in arranging ecient negotiations and favourable terms, particularly in Loan Syndication. This makes a company competitive enough among its counterparts /peers
companies.
Financial Restructuring
Sumedha Fiscal also assist companies in restructuring their capital structure, negotiate with lenders for settlement of restructured loans, reschedule debt to lower interest costs and extend the repayment period. In extreme cases company also arrange Mergers and Takeovers of stressed Companies. This is the major revenue generating at the time of boom as well as slowdown period.
Portfolio Resolution of Stressed Assets
Company is also into Portfolio Resolution of Stressed Assets. An increased emphasis by Reserve Bank of India on improving asset quality and capital adequacy is causing a number of Banks and Institutions to focus on Non Performing Assets (NPA) Management. Sumedha Fiscal has requisite experience; specialized skill sets and focused approach to facilitate resolution and settlement of loans. Company is empanelled with major Banks and Financial Institutions as Recovery Agent.
Mergers & Takeovers
Sumedha Fiscal also assist companies in restructuring their capital structure, negotiate with lenders for settlement of restructured loans, reschedule debt to lower interest costs and extend the repayment period. In extreme cases company also arrange Mergers and Takeovers of stressed Companies. This is the major revenue generating at the time of boom as well as slowdown period.
Portfolio Resolution of Stressed Assets
Company is also into Portfolio Resolution of Stressed Assets. An increased emphasis by Reserve Bank of India on improving asset quality and capital adequacy is causing a number of Banks and Institutions to focus on Non Performing Assets (NPA) Management. Sumedha Fiscal has requisite experience; specialized skill sets and focused approach to facilitate resolution and settlement of loans. Company is empanelled with major Banks and Financial Institutions as Recovery Agent.
Mergers & Takeovers
Company core competence includes value oriented research and identifying business partners, suggesting economically viable projects and arranging technical and financial collaborations. Along with our International Aliates, company arrange global, technical and financial collaborations and provide assistance in preparing necessary project documentation and obtaining statutory approvals for such projects.
Equity Placements
Company also caters into equity placement which helps clients in Syndication and arrangement of Private Equity and Venture Capital Financing. It also arranges Equity Financing for Corporate and Entrepreneurs for Seed Capital, Early Stage and Late Stage Financing.
Subsidiaries in commodities are:-
SFSL Risk Management Services (P) Ltd. SFSL Commodity Trading (P) Limited is the subsidiary company of SFSL.
Subsidiaries in commodities are:-
SFSL Risk Management Services (P) Ltd. SFSL Commodity Trading (P) Limited is the subsidiary company of SFSL.
SFSL Insurance Advisory Services (P) Ltd.
Seasoft Solutions Pvt. Ltd.
Capita Finance Services (P) Ltd.
Financial Highlights
Market Cap: [Rs.Cr.] 11 crs |
Face Value: [Rs.] 10
P/BV (x) 0.66
ROCE (%) 31.3
EPS 5.9
Dividend Yield (%) 4.1
RONW (%) 23.7
EV/ EVBIDTA (x) 1.88
So there is a long way to go. Investors with faith in Sumedha Fiscal Services Limited
management and having patience will definitely earn a lot.
Possitive Points for this stock for Up moving:
1) Company doing very good with EPS 5.45/- PE only 3 Available very cheep at 17/-
2) Equity is very small at 6 Crores..
3) Dividend Paying Company.
4) Preferential Issued at 31/- to promoters.
5) Expansion Plans going on, This year Profit may zoom and EPS 9/-+++ .
6) Accumulating by Operators and Mutual Funds.
7) Its very worthy stock at 17/- to accumulate, Every one hodl 1,000 shares will get double in 1 month.
Enter current price at 17/- Short term Target 39/- Strong Fundamentals. Just Buy at 17/- get 200% to 500% Profit.
Happy Investing...
Seasoft Solutions Pvt. Ltd.
Capita Finance Services (P) Ltd.
Financial Highlights
Market Cap: [Rs.Cr.] 11 crs |
Face Value: [Rs.] 10
P/BV (x) 0.66
ROCE (%) 31.3
EPS 5.9
Dividend Yield (%) 4.1
RONW (%) 23.7
EV/ EVBIDTA (x) 1.88
So there is a long way to go. Investors with faith in Sumedha Fiscal Services Limited
management and having patience will definitely earn a lot.
Possitive Points for this stock for Up moving:
1) Company doing very good with EPS 5.45/- PE only 3 Available very cheep at 17/-
2) Equity is very small at 6 Crores..
3) Dividend Paying Company.
4) Preferential Issued at 31/- to promoters.
5) Expansion Plans going on, This year Profit may zoom and EPS 9/-+++ .
6) Accumulating by Operators and Mutual Funds.
7) Its very worthy stock at 17/- to accumulate, Every one hodl 1,000 shares will get double in 1 month.
Enter current price at 17/- Short term Target 39/- Strong Fundamentals. Just Buy at 17/- get 200% to 500% Profit.
Happy Investing...
The case for emerging markets equities rests on their superior long-term growth prospects, which in turns depends on the rate of urbanization of the population as workers migrate from rural areas to cities, thereby increasing income levels and productivity. The McKinsey Global Institute has recently released a fascinating report on urbanization and how the rise of these cities is driving the growth of the consumer class, particularly in emerging markets
. To summarise:
. To summarise:
-Until 1500, Asia was the centre of gravity of the world economy and contributed roughly two-thirds of global growth. The urbanization and industrialization of Europe and the US led to a shift in the centre gravity to the west, which is now rapidly being reversed on an unprecedented scale (see diagram below).
-One billion people will enter the global consuming class (with incomes of more than $10 per day at PPP) by 2025, becoming significant consumers of goods and services. Around 600 million of them will live in 440 cities in emerging markets (the "Emerging 440") and are likely to account for about half of global GDP growth between 2010 and 2025.
-The income of these new consuming classes will rise faster than the size of the class, leading to many products and services reaching take-off points at which their consumption increases rapidly.
-Urban consumers are expected to contribute $20 trillion of additional spending to the world economy by 2025, requiring a boom in construction and infrastructure investment from $10 trillion today to $20 trillion by 2025, with most of the growth coming from emerging markets.
-This huge amount consumption and investment is likely to inject more than $30 trillion of additional spending into the world economy by 2025, leading to even more demand for natural and capital resources and driving their prices higher.
-The Great Recession has hit the US and Europe particularly hard and has accelerated the global economic rebalancing. During the 2007-2010 period; the GDP of large Chinese cities has risen from 20% to 37% of GDP of large US cities, including the rise of 3 new Chinese megacities with populations of more than 10 million . In contrast, Chicago is the only city in the developed world which will reach megacity status by 2025.
-The Emerging 440 includes 20 megacities which will likely generate $5.8 trillion of GDP growth by 2025, with a compound growth rate of 7.6% which is about double the growth rate expected for the global economy during this period.
-But the 400 cities of the Emerging 440 which are middleweight cities with populations between 200,000 and ten million, that are likely to grow at even a faster rate of 8% and contribute $ 17.7 trillion in GDP growth by 2025.
-In the Emerging 440, China has 6 megacities and 232 middleweight (?) cities, Latin America has 4 megacities and 53 middleweight cities, India/South Asia has 8 megacities and 28 middleweight cities , and Africa and the Middle East have 2 megacities and 37 middleweight cities.
-Of the $20 trillion expected increase in consumption in all large cities across the world, $14 trillion will be in large emerging market cities out of which $10 trillion will take place in the Emerging 440 alone.
-By 2025, 80% of households in the Emerging 440 will be part of the global consuming class (annual incomes more than $3,500), 55% of households as part of the middle-income class (annual incomes more than $20,000) and account for 50% of the global growth of high-income households (annual income more than $70,000).
-China will alone account for 19% of the new high-income households, India 6%, Russia and Brazil 4% each and Mexico 3%, with these five countries accounting for 33 million high-income households out of a total of 60 million households in the Emerging 440.
-As the populations of many large emerging economies increase their annual incomes, discretionary spending on goods and services takes off rapidly – for example, dining out (at $3,000), transport and communication (at $6,000), washing machines (at $10,000) and retail banking and leisure travel (at $18,000).
-In addition to the demand for goods and services, cities will need to invest heavily in infrastructure with a doubling of annual physical investment from $10 trillion today to $20 trillion by 2025.
- In particular, buildings (construction equivalent to 85% of all today's residential and commercial building stock requiring a cumulative investment of $80 trillion), port container capacity (investment of $200 billion to cater for a 2.5 times rise of global traffic) and municipal water (investment of $480 billion to increase consumption equivalent to 40% of today's level).
-This consumption and investment is already straining the global supply of capital and natural resources. The urban world has resulted in a jump in the global investment rate from 20.8% of GDP in 2002 to 23.7% in 2008, followed by a dip during the global recession, and is projected to increase to 25% by 2025.
-Increases in the prices of energy, land, food and water in the first decade of the 2000s has already wiped out the 48% decline in prices observed during the entire 20th century.
-However, cities that under-invest in infrastructure and fail to keep pace with their expanding populations and their demands, or invest inefficiently or in the wrong things – can find themselves hitting barriers to growth.
-Lastly, urban markets are highly diverse, and many of the fastest-growing segments are likely to be in middleweight cities in emerging economies that are simply not on the radar screens of many multinational companies.
Fascinating research - and the single most important phenomena which is will positively influence investment returns over the course of the next decade (the deleveraging phenomena in the developed world being a negative influence on investment returns!) . It is the irreversible trend in urbanization in the emerging world which will eventually overpower the numerous negatives cited for developing countries - to name a few - corruption, inequality, bad policy, overinvestment and low consumption-and lead to a rebalancing in the global distribution of growth (see chart below). It is therefore critical to maintain a core weighting in emerging markets, particularly China and India (favouring domestic companies rather than multinationals as they have better access to the middleweight cities), and in natural resources which face increasing price pressure from this massive scale of consumption and investment spending. Rising inflation and interest rates will go hand-in-hand with this increasing consumption and investment spending, implying higher allocations to equities, natural resources and hard assets like land.
This report reviews the emerging experience with the economic crisis emanating from the Euro area to draw implications of such situations for Asia and ADB. It draws on analysis within the ADB, in other international financial institutions (IFIs), and in the research community, with particular attention to the lessons from evaluations of past crises and IFI responses to them.
The paper presents the following conclusions:
The evidence suggests that the probability of a major crisis in the Euro-zone over the next 12 months is not insignificant.
The evidence also points to substantial spillover risks to Asia from such a crisis. However, risks vary notably across Asian countries, and these countries can do much to mitigate these risks.
Read more or download the full report
Investing with Style: A Primer
Successful equity style timing can considerably add to investment performance. So what is style investing? In this article, learn how it can be a source of added value, as well as which styles work best in various economic phases.
Style investing is concerned about investing in equity market segments that are driven by common risk factors and tries to select the appropriate style at the right stage of the business cycle. The most popular equity investment styles are: value vs. growth stocks, large caps vs. small caps, and defensive companies vs. cyclical companies. While academics have long neglected style investing, practitioners have been using these classifications for a long time. Value investing, for instance, goes as far back as Benjamin Graham and David Dodd and their investment classic "Security Analysis" (1934). Warren Buffett is probably the most famous proponent of the value approach to investing.
Cycle clock framework
Why Should Investors Be Interested in Style Investing?
Styles are among the most important return drivers in active equity portfolio management. Getting the style timing right can lead to significant outperformance relative to the overall market and could be a substantial potential source of added value. When a style is in favor, all managers of that particular style usually benefit from the tailwind, whereas the other styles languish. The figure shows our Cycle Clock framework, which indicates the styles that work best in certain phases. Obviously, this is a simplified view and need not hold at all times. However, it is a good starting point for an equity style strategy.
Russell 2000 relative to Russell 1000
Varying Performance in Different Phases
Style performance can vary substantially over time. During the technology bubble in the late nineties, for instance, growth strongly outperformed value for several years. While the fortunes eventually reversed, pure value managers suffered in the meantime and saw significant outflows of client money. The relative performance of large cap stocks relative to smaller companies was also subject to dramatic swings at times. Although over the entire period shown in the chart, small caps outperformed their larger counterparts, there were substantial reversals in between. This illustrates the danger of adopting strategies that rely on simple observations such as "small caps outperform large caps in the long run". The long run might simply be too long.
How To Select Between Different Styles
As certain styles work best in a specific phase of the business cycle, a natural starting point for determining which style works best at a certain point in time is our Global Cycle Clock. Based on a measure of the global output gap, the Cycle Clock divides the business cycle into four distinct phases: recovery, overheating, slowdown and contraction. Cyclical companies and small caps, for instance, usually outperform during recovery phases, while large caps and high-quality stocks outperform during slowdown and contraction phases.
While getting the phase in the business cycle right goes a long way in explaining a style's performance over time, there are times when factors other than the cycle dominate. During the technology bubble or the European sovereign debt crisis, some styles did not perform as the Cycle Clock had predicted. As it is only one factor, it is unlikely to catch all the relevant dimensions of a particular style's performance. In order to refine the signals of the Cycle Clock, we incorporate three additional variables into our framework: relative valuations, momentum and investors' risk appetite. By doing so, we are able to improve the accuracy of the signals (hit ratio) relative to using the Cycle Clock alone by between 1.6 and 6.6 percentage points and the average (annualized) monthly performance by between 4.5 and 16 percentage points.
An overview of the most popular equity investment styles is provided below.
Is Big Really Beautiful? Large Caps Versus Small Caps
An equity style that is based on size is usually determined by the market capitalization of the constituents. As noted, historically, small caps tended to outperform large caps. Still, there were long stretches of small cap underperformance. Often, the stocks of larger companies outperformed in more difficult market environments and when investors are more risk averse, as larger companies are, on average, more resilient to withstand economic headwinds and have easier access to financing sources than smaller companies. On the other hand, when economic growth is strong and stocks rise, small caps often outperform the overall market.
There are many reasons why small cap stocks offer better returns than larger companies. One reason could be institutional policies that prohibit money managers from investing in stocks with a market capitalization below a certain threshold, due to a lack of liquidity. As a consequence, companies that fall below that limit get less analyst coverage and hence mispricings tend to be more pronounced, giving rise to the "smallcap- effect". Also, smaller companies usually grow faster than larger ones that often operate in saturated markets. Furthermore, smaller companies often get taken over by bigger ones trying to gain access to crucial technology or new markets, resulting in handsome gains to investors in these small cap stocks.
Cyclicals Versus Defensives
A further distinction of the equity market could be made in terms of cyclical and defensive companies. Cyclical companies are highly sensitive to the business cycle. When times are good and economic growth is strong, cyclical companies benefit disproportionately from the expansion. When the tide turns and times get tougher, however, these companies tend to suffer more than others. Companies in the materials, industrials and consumer discretionary sectors are cyclical in nature. Financial services and energy companies also exhibit cyclical traits.
Cyclical companies versus defensives and Cycle Indicator
Defensive companies, on the other hand, operate in sectors and industries that are less dependent on the economic cycle. Demand for their products is largely unaffected by the ups and downs of the economy. Defensive sectors are consumer staples, healthcare, telecom and utilities. The choice between cyclical and defensive sectors depends to a large extent on the stage in the business cycle. As soon as there are signs that a recession is on the verge of ending and an upswing is setting in, cyclical companies start to outperform the more defensive companies. The reverse pattern is observed when economic activity is rolling over.
The Value of Value Investing: Value Versus Growth
"It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Warren Buffett's quote succinctly summarizes the approach of value investors. Value investors focus on the "price" in the price/earnings ratio, whereas growth investors are more interested in the "earnings" part. Value investors are keen on finding undervalued companies and want to pay as little as possible for the earnings stream a firm is able to generate. Growth investors, on the other hand, are looking for companies with above-average growth prospects and are less sensitive to the price they pay for the earnings of a business.
Several studies have demonstrated that a value strategy performs better than a growth strategy in the long run. Often, this outperformance is ascribed to the value style's greater riskiness. Probably closer to the truth is the explanation that investors simply overpay for growth. If expectations (and prices) for future growth are running high, even small disappointments could lead to painful losses as the margin of safety is small. Value investors, on the other hand, are very skeptical about the value of growth due to the difficulty of its estimation. Usually, growth investing performs better during more challenging market environments, when growth is scarce. In these situations, companies that offer growth opportunities command an above-average valuation premium. Value, on the other hand, normally outperforms during upswings, when growth opportunities are abundant.
Quality Stocks – Good Company = Good Investment?
While investors often talk about "quality stocks", there is no clear-cut definition of what exactly a quality company is. However, few people would disagree that quality stocks have low leverage, show high and persistent profitability and have low sales and earnings volatility. But other factors need to be taken into consideration too, including transparent information vis-à-vis the investment community and the participation of key employees in the success of the company. Such companies are often large conglomerates that manufacture recognized brands and/or have an outstanding position in their markets. Whereas stocks of lower quality tend to outperform in an economic upturn, quality stocks on average outperform the market over an entire economic cycle, as they hold their value much better during cyclical downturns. Of course, even these companies cannot escape the waves of selling pressure that affect the financial markets, but their stronger balance sheets enable them to weather storms better, and in some cases to even emerge stronger from a crisis, as their weaker competitors are often driven out of the market in such situations.
MSCI World Index with and without dividends reinvested
Income Generators or High-Dividend-Yielding Stocks
This style refers to investing in companies with a tradition of paying above-average dividends and which are expected to continue to do so in the future. We thus look for well established companies generating steady revenues which translate into regular cash inflows for their shareholders. Even though many investors think of dividends as unexciting, over time their impact on performance could be rather dramatic. Whereas 100 US dollars invested in the MSCI World Index in 1973 would have grown to about 1,200 US dollars today, an equal amount invested in the same index with the dividends reinvested would have grown to almost 4,200 US dollars over the same time horizon. Including dividends, the total return would have been 3.5 times bigger. Often, the "income generators" operate in more defensive industries and produce goods and services that are needed irrespective of the prevailing business cycle. Thus, the stocks are less volatile and achieve more stable profits which allow them to pay out regular dividends. The stocks of such companies are likely to outperform the overall market in periods of economic slowdown or contraction. However, they tend to lag during recoveries.
Momentum and Contrarian – Past Performance Is (somewhat) Indicative of Future Returns
Momentum investors invest in the most popular stocks. Their strategy is to take short- to medium-term positions in stocks which exhibit positive price performance and where earnings and growth expectations are positive and rising. The best entry point for this style would be near a stock market trough, just at the beginning of a major rally. In reality, a momentum investor would have to wait until a trend is well established before investing. Ideally, investors exit the strategy at the peak of a stock market rally. Empirical research indicates that the best returns are usually achieved over a period of 6–12 months. However, momentum strategies tend to underperform over periods longer than one year as mean reversion sets in.
Why should a simple strategy such as momentum outperform? Traditional finance says high returns are justified by the style's riskiness. Behavioral finance argues that people become overly pessimistic about companies that have done badly and become overly optimistic about past winners. As these trends continue for some time, prices start to deviate from fundamentals and the losers become under- and the winners become overvalued. This mispricing, however, tends to correct itself eventually, as contrarian investors become interested. As the name implies, contrarian investors select companies which most other investors do not wish to own. Companies with the lowest momentum scores belong to the contrarian style. Thus, contrarian investors select businesses which are underpriced and show negative price momentum. In the words of John Maynard Keynes, contrarians believe that a "central principle of investment is to go contrary to general opinion, on the grounds that if everyone agreed about its merits, the investment is inevitably too dear and therefore unattractive."
( Credit Suisse )
A water supply crisis might be the most likely and severe societal risk during the next 10 years. In response to this, both governments and business are increasingly engaging in dialogue to address water scarcity."
Full article can be read at
https://infocus.credit-suisse.com/app/article/index.cfm?fuseaction=OpenArticle&aoid=355403&lang=EN&WT.mc_id=Feed_Credit%20Suisse%20-%20In%20Focus
"Muddling through" the European debt crisis is no longer an option: Fundamental decisions must be taken, explained Credit Suisse Research Institute members and senior advisors at the recent bi-annual meeting in London. They agreed that although the announcements from the latest EU summit indicate concrete steps towards closer political and economic union, structural reforms and tightening of fiscal budgets are among further, long-term measures required to guarantee the union's stability. "
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"This month's Absolute Return Letter picks up on the question we left hanging in the air back in May - is Asia a potential re-run of Europe? Although policy rates appear to be dangerously low, and thus encouraging further borrowing, Asia has come a long way since 1997 and there is no immediate risk of a financial meltdown. Australian property prices and commodity prices - in particular crude oil prices - are more likely 'credit event' candidates in our opinion.
Enjoy the read and the summer.
