- It is well documented that the Warren Buffett indicator, which measures equity market cap as a ratio of GDP, is at an all time high, surpassing the dotcom boom.
- It is less well documented that the ratio of profits to GDP is also strong and has been trending up.
- h/t The Market Ear.
Equity Strategy
Japanese Small Cap Value
- Small cap value stocks in Japan are very attractively priced relative to the broader Japanese market.
- NB value defined as cheapest half of market, size defined as smallest third. Multiple valuation metrics used.
- Source: GMO.
EM vs US Equities
- Emerging market equities are approaching a near 20 year low relative to S&P 500.
Stock Issuance
- Equity issuance at an all time high. Not a bullish sign.
- Source: GMO.
Bounce Backs
- The time it takes for the stock market (S&P 500) to recover from a 2-sigma one day decline is at a historic low.
Growth Scarcity
- Back in the early 2000s half of the stock market would be classified as a growth stock.
- Today only 67 companies have a top line 5-year growth rate of >15%.
- Growth is scarce.
- Source.
Mid Cycle Growth Slowdown
- We are likely entering the mid-cycle where growth is slowing, though it will remain at a high level.
- This is a nice chart showing that such slowdowns historically haven’t meant that stocks sell-off.
- Source.
Vaccination and Politics
- US Vaccination rates by state follow the political divide.
- Many Republican-leaning states have more than half of the population still unvaccinated.
- Source: BCA Research.
Post and Pre IPO Value Creation
- Who reaps the majority of the rewards from venture backed companies – VC or public markets?
- “Over the last decade when measured in terms of total dollars of value creation accruing to pre- and post-IPO investors: post-IPO investor gains have often been substantial.“
- Of the 165 IPOs analysed – the vast majority had a large share of value accrue to public markets (blue region).
- There are some exceptions (red region), and some shared (yellow region).
- Source.
S&P H1 Return Decomposition
- Interesting to see that more than 100% of the 14% H1 2021 return of the S&P 500 index is earnings growth.
- Source.
UK Valuation
- UK stocks are very cheap relative to the world (Source).
- This compares valuation at index level and hence index sector composition has a big impact.
Growth Premium
- The valuation premium at FY 2 for growth stocks vs. value has come down a lot but is still above long-term average.
- Source.
Tech Positioning
- According to the May BofA Global Fund Manager Survey allocation to tech is at an all time low.
- NB these surveys are self reported so actual positioning might be different.
- Source.
Defensives vs. Cyclicals
- In the current environment – with PMIs at highs and economic surprise indices flirting with zero – it is worth keeping this chart in the back pocket.
- Source.
Hosking Partners on Value
- Interesting latest piece (page 15) from Hosking Partners on why the rotation into value stocks will persist.
- (1) They perform well at the end of recessions (2) stimulus favours value (3) Covid recovery will be long and is only getting underway now in some countries (4) fund managers are entrenched (5) Interesting ESG angle.
- There is also a full webcast that is worth listening to.
Market Expected Return on Investment
- Intangible assets matter more and more in the stock market.
- Yet, they are generally poorly accounted for and valued.
- This is a useful paper on a new metric – the market expected return on investment – that aims to give a more accurate view of returns in a world increasingly dominated by intangible assets.
- Though technical it is worth a careful read.
Just in Time Inventories
- Inventories at retailers have been falling for years (left hand chart).
- Wholesalers have also been conservative (right hand chart).
- This has led to trouble in the big demand rebound of 2021.
Emerging Markets
- Staggering change in the composition of Emerging markets indices.
- They are now over half Tech/Discretionary vs. being nearly half Energy and Materials.
- Always look under the surface.
China Credit Impulse
- China’s credit impulse leads global manufacturing PMIs by 12 months.
- It just rolled over.
Inflation Mentions
- Companies are mentioning inflation an awful lot.
