Bearish On Equity Markets Again? Don’t Be…

For the past few months I have read many articles, reports and media coverage expecting a huge equity bear market to emerge? I am not convince once again despite the out performance this year. If you look at the reasons given by many experts out there predicting the end of the bond bull market many years ago; you will see the similar arguments now on equity markets. Small groups cited technical readings, some citing emerging market weakness lead by BRIC while a large group out there cited valuations. My philosophy to investing have been centered around relative value and opportunity cost of capital. Modern capital cares little on rising interest rate effect on equity valuation just as it ignore the valuation when interest was on decline for the past decades. This is because modern capital ignores valuation in the long term but instead concentrates on relative performance in the short term despite many participants continue to use medium/long term valuation to predict richness/cheapness of investments. Forward yields on Global Equities has been trading at the widest spread to government bonds for a long time and the time has come to narrow as capital now sees potential of relative out-performance. Even if my analysis is wrong, try using traditional financial methods of “Present Value” back the cash flow of equity yields versus bonds. Can you see how high the floor is? Hence, don’t jump, sit back and let the rising floor lift your returns.

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  1. #1 by tszngongko on October 26, 2013 - 12:15 am

    I do believe that what you are saying is partially right, in a sense we are in an equilibrium. Yet the markets capital is flowing from big names to small cap partially and the big caps are has more value than small cap in hong kong at least. A lof of the out performance in HK are due to placing and gang buying, thus not a rational betting.

    One of the very useful technique in monitoring fund flow is to use http://www.hkifa.org.hk/chi/sales-redemptions-data.aspx which is a basic set of funds sales data in Hong Kong. If one uses a contrarian approach in employing such data, one would only have 2 down years in the last 10 years.Which is a simple and easy way to make profit. Let me know your thoughts on that.

    • #2 by jeffreyyap on October 26, 2013 - 9:47 pm

      tszngongko,
      You might have misinterpreted my blog. The article was meant to explain the phenomenons between asset classes and how traditional valuation methods and theories lack completeness when it comes to evaluating future performance. We are not in equilibrium and we will never be, unless “we are all dead” as economic and its activities are dynamic. Your comments on HK centered around speculative movements which I shall not want to comment.
      One advise nevertheless, fund flow data track is a statistically flawed analysis tool given the imperfect sample size and timing of data gathering and inputs. Maybe your contraction approach is self-fulfilling as there are people who follow these data to derive investment decision. I will not.

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