Ho hum, another day, another new high in Spooz. Macro Man's decision to lighten up may have been a bit premature, but he has more to go and may be ushering some holdings out the door very shortly.
Volume hasn't exactly been spectacular, but that probably shouldn't come as a surprise, given how quiet everything else is. VIX vol, for example, has recently touched all time lows. In other news, CNBC has apparently hired Rita Coolidge as one of its expert financial commentators:
US equities are hardly alone in their enthusiasm, however. In India, the latest exit polls have the market-darling NDA coalition comfortably in the lead in the country's mammoth election, perhaps even in a position to win an outright majority. Price action in the NIFTY has certainly lived up to its name:
Digging somewhat beneath the surface, however, one wonders if all the good news isn't priced- and then some. Current valuation per Bloomberg has the P/E at 17.26 and the dividend yield at 1.42%. The valuation for MSCI India is broadly similar (actually, slightly worse.) Although these figures don't particularly stand out versus the SPX (17.4 and 1.94%), it's important to remember that the RBI policy rate is 7%, so the present value of future earnings is a quite a bit lower in India than in the US. In fact, Indian equities have a substantially lower dividend yield than Japan's TOPIX index (2.00%), which have lived through a decade and a half of ZIRP.
Indian equities look even more expensive in comparison to their EM brethren: the MSCI EM index has a P/E of just 12.05 and a divvy yield nearly twice as high as India's (2.71%.) This isn't to say that Indian stocks are a lead-pipe cinch to take a tumble, merely that valuations are far from compelling. The counter-argument is that these valuations are fairly modest by the standards of history, as the chart below illustrates:
Nevertheless, it's hardly a ringing endorsement that something that currently looks fairly expensive compared to most other assets isn't quite as expensive as it itself used to be (when other assets were also generally more expensive.) Sure, the election should be good news, but Macro Man cannot get yesterday's Twitteresque precis of Kindleberger out of his head: innovation (in this case political) is priced, then over-priced, then the collapse.
The final warning shot is that positioning looks relatively stretched. Courtesy of Morgan Stanley, the chart below suggests that positioning in Indian equities is not only stretched versus its own history, it's also far and away the largest overweight in the EM space. Sure, markets are overweight for a reason...but ask FX and rates punters how profitable hanging out with consensus positioning has been.
What's the Sanskrit for caveat emptor?
US equities are hardly alone in their enthusiasm, however. In India, the latest exit polls have the market-darling NDA coalition comfortably in the lead in the country's mammoth election, perhaps even in a position to win an outright majority. Price action in the NIFTY has certainly lived up to its name:
Digging somewhat beneath the surface, however, one wonders if all the good news isn't priced- and then some. Current valuation per Bloomberg has the P/E at 17.26 and the dividend yield at 1.42%. The valuation for MSCI India is broadly similar (actually, slightly worse.) Although these figures don't particularly stand out versus the SPX (17.4 and 1.94%), it's important to remember that the RBI policy rate is 7%, so the present value of future earnings is a quite a bit lower in India than in the US. In fact, Indian equities have a substantially lower dividend yield than Japan's TOPIX index (2.00%), which have lived through a decade and a half of ZIRP.
Indian equities look even more expensive in comparison to their EM brethren: the MSCI EM index has a P/E of just 12.05 and a divvy yield nearly twice as high as India's (2.71%.) This isn't to say that Indian stocks are a lead-pipe cinch to take a tumble, merely that valuations are far from compelling. The counter-argument is that these valuations are fairly modest by the standards of history, as the chart below illustrates:
Nevertheless, it's hardly a ringing endorsement that something that currently looks fairly expensive compared to most other assets isn't quite as expensive as it itself used to be (when other assets were also generally more expensive.) Sure, the election should be good news, but Macro Man cannot get yesterday's Twitteresque precis of Kindleberger out of his head: innovation (in this case political) is priced, then over-priced, then the collapse.
The final warning shot is that positioning looks relatively stretched. Courtesy of Morgan Stanley, the chart below suggests that positioning in Indian equities is not only stretched versus its own history, it's also far and away the largest overweight in the EM space. Sure, markets are overweight for a reason...but ask FX and rates punters how profitable hanging out with consensus positioning has been.
What's the Sanskrit for caveat emptor?
7 comments
Click here for commentselections in India seem to have a 20% standard move, and this one could be a game changer.
ReplyRetail sales were horrible and if new home sales in April are in the dumps as well, I gotta think GDP forecasts start coming down
Yet new highs blue skys! Tough market to call
Agreed 100% on India, and perhaps this is an inevitable consequence of the fact that so many EM fund managers have been practicing Russia and China avoidance in Q1, and not that many have been jumping back into Brazil just yet.
ReplySo that leaves the smaller EMs ..... South Africa (don't fancy it), Ukraine (ha ha) and the MINTs, lemme see, Turkey (oo-er missus), Nigeria (um, no thanks), Indonesia and the rest of emerging Asia ('ere, did you have your radar on, have you seen our airplane?).
So you're left with too much money chasing too few "stable markets" and the result is a vastly over-priced India (and Mexico), with Russia being a huge bargain unless WW3 starts and China looking more attractive daily, although likely to go lower before we see the bottom.
As for the US, Silly Season seems to be with us early, no volume, Vanishing VIX, FX vol low to the point of almost unmeasurable, but how many of these rolling tops have we seen in the Spring before the annual Summer dump (2010, 2011, 2012)? All we need now is the Official Narrative for the sell-off.
ReplyThe answer is:
Reply***क्रेता सावधान! देख के खरीदो! (pr. \\***kreta savadhan! dekh ke kharido!\\ )
शाबाश (Shābāsh), Macro Man!
India Small Cap ETFs, like SCIF, are pretty cheap, P/E - 9, P/B - 0.87, down in dumps with 3 year return of -16%.
ReplyThe valuation, and performance, gap between Indian Small Cap and Large Cap is at an all time high.
Current Euphoria of end of Progressive alliance's chavez style administration and installation of 1st not-socialist PM is justified only if NDA achieves 280 seats.
Comment posted by a US Treasury trader:
Replyhttp://imgur.com/VB4Hd1m
@9:37
Reply" 1st not-socialist PM" .
Oh puhleeze!
Wall St. thinks business-friendly government under Modi?Got to be kidding?It was the BJP who voted AGAINST FDI in retail. But front running is an age old practice and gullible westerns are ripe for the picking!Lot of money sloshing around at zirp has to find a home..
http://www.indiatvnews.com/politics/national/lok-sabha-defeats-bjp-motion-against-fdi-in-retail-by-253-to-218-7134.html
http://mises.ca/posts/blog/indian-stock-market-at-its-highest/