There are some important company earnings reports and economic reports due out in the next couple of weeks.

I want to take time to review them carefully before saying too much as we’re at a critical point in the travels for the global equity markets and the global economy.

For now, some links and notes about observations and topics I’ve recently found interesting:


1. Update on the Canadian equity market (TSX composite):

TSX (non currency adjusted) vs S&P 500 Index: Courtesy of

TSX composite index
TSX composite index

The Canadian equity market (the TSX composite, non currency adjusted) has been doing well on an absolute basis since November 2012. But on a relative basis, Canadian listed equities (the TSX) continue to struggle relative to the S&P 500 large cap companies. The TSX still has a way to go to reach the previous highs last seen in the spring of 2011. That said, I’d identify the Canadian companies you want to own long term, and wait for the next significant decline in the global equity markets (at least 10%) before considering any un-hedged long positions in Canadian listed companies.


2. Update on the MSCI Emerging Markets index:

MSCI Emerging Markets Index (currency adjusted) : Courtesy of

MSCI emerging markets index (currency adjusted)
MSCI emerging markets index (currency adjusted)

The MSCI emerging markets index has had a good absolute run going back to mid summer of 2012. The emerging markets equities finally ended their relative under-performance vs US equities around August/September of 2012. The increased willingness on the part of equity investors to take risk may be part of the reason emerging markets stocks have finally started to out-perform the S&P 500 (on a currency adjusted basis). We’ll know by the end of 4Q12 earnings in about 3 or 4 weeks (emerging markets companies take longer to report) how this new out-performance trend for Emerging Markets equities will probably shape up for 2013. Equity prices vs. long-term valuation in some emerging markets countries are attractive, but you need to be very selective and do your research homework if your considering un-hedged long positions in individual company emerging markets equities.


3. Update on Chinese equities:

Hang Seng (Hong Kong) Index (non currency adjusted): Courtesy of

Hang Seng (Hong Kong) Index (H shares of Chinese companies)
Hang Seng (Hong Kong) Index (H shares of mostly Chinese companies)

The Hang Seng index (Hong Kong market) performance was pretty brutal for most of 2011, had a brief recovery at the start of 2012 and then tanked again until the summer of 2012. But the upward run since the summer of 2012 has been quite impressive. The Hang Seng index has also been out-performing the S&P 500 index since about August of 2012.

I have done some in-depth research work on Hong Kong listed companies and the H shares for individual companies. The way the sell-side approaches valuation and marketing of the H shares in Hong Kong is exactly the same as done with North American listed equities. The research work often is very hyped. That said, the financial reporting on Hong Kong listed companies is usually much better than most emerging country financial reporting. (I know Hong Kong itself and the Hong Kong stock exchange are considered developed market, but the listed company’s operations in many cases are exclusive to mainland China, so I consider them still emerging market companies).

Shanghai Index (mainland China, A shares, non currency adjusted): Courtesy of

Shanghai Index (A shares)
Shanghai Index (A shares)

The Shanghai index had a terrible downward run from the end of 2010 until the beginning of December 2012. The bounce off the recent bottom has been impressive, but we’ve seen this type of bounce before with Chinese stocks. The economic data out of China has improved lately, but I need a little more time, in my view, to see if this upward run in Chinese stocks is for real. I do have my eye on some attractively priced Chinese companies, but until I have more confidence in Chinese equity markets, I’ll take a wait and see approach for now. If the good Chinese equity market action keeps up through another earnings reporting round (1Q13 earnings on the Hong Kong exchange), I make take some equity option positions in some Chinese companies I’ve studied over the years (more on options another day).


4. Update on Brazilian equities:

Brazilian Bovespa Stock Index (non currency adjusted): Courtesy of

Brazilian Bovespa Stock Index
Brazilian Bovespa Stock Index

Similar to other emerging markets, the Brazilian Bovespa Stock index had a miserable run during most of 2011, attempted a recovery at the beginning of 2012 and then headed south again until the late summer of 2012. Since the late summer of 2012, as risk appetites have increased, the Bovespa has done well on an absolute basis, but the performance is no better than the S&P 500 index itself (on a non currency adjusted basis). I’m a bit disappointed with the performance of the other Americas stock indices relative to the S&P 500 (Canada included). Just another sign that if the growth in the US economy is “not great”, it’s hard for equity investors to get excited about equities in countries (such as Canada) that depend on the US as a large trading partner.


5. Update on World Developed Market Equities (ex US):

MSCI World (ex US, developed country) Index (currency adjusted): Courtesy of

MSCI World (ex US, developed country) Index
MSCI World (ex US, developed country) Index

Again, similar to the MSCI Emerging markets index, on a currency adjusted basis, the MSCI World (ex US, developed markets) Index has been out-performing the US S&P 500 index since late summer 2012. Granted the developed economies in Europe are either in recession or have even slower growth than the US, so this out-performance in the developed market equities relative to the US is interesting to see(I guess the thesis is things can’t get much worse), but I’m not sure if it is sustainable. That said, the valuation on some European listed companies is interesting even with the slow growth profile for Europe.

Similar to many of the S&P 500 listed companies, a significant portion of European listed (large cap) companies are really global companies. Many emerging markets companies either dual list on the European exchanges or they are controlled by European listed parent companies. The companies listed on the European markets can do much better than the European economy as a significant portion of their revenues and earnings growth is realized outside of Europe.

We could be seeing the early stages of a multi-year trend shift to out-performance of global equities relative to the S&P 500 index. My worry is the global economic environment still remains weak at best and I believe the equity markets are getting ahead of reality with respect to the earnings growth potential of these companies.


Until next time.


Comments are closed.