How cheap are the major markets?

Chris Watling

While absolute valuation has limited use for timing cyclical bull and bear markets, it does provide insights into market sensitivities to challenging (or indeed positive) economic environments. Added to that, relative valuation can be particularly insightful – especially as a key building block for allocating between asset classes and geographies.... Show More

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Iron Ore: Is the price about to roll?

Chris Watling

Chinese steel consumption is the most significant variable in determining the iron ore price. China consumes over half of the world’s iron ore each year. As such, and while supply themes play a role, cycles of Chinese credit growth and housing activity are the key factors in determining iron ore... Show More

The historical logic behind tariffs

Chris Watling

Whilst the diagnosis of the driver of the deficit might be wrong, Trump' actions viewed through the lens of the history appear more logical. Indeed if the models of the rise and fall of Great Powers laid out by Paul Kennedy, Charles Kindleberger and more recently, by Professor Graham Allison... Show More

US Bond Yields Rallied 13% overnight. Here’s why.

Chris Watling

Sharp moves in US interest rate expectations, 10 year bond yields and consequently the dollar has brought about some significant rotation within global financial markets. That initial shift in US rate expectations, likely driven by last week’s Fed ‘DOTs’ signalling their clear intention to hike in December coupled with Yellen’s... Show More

Sector Switch: Out of Tech and into Financials

Chris Watling

US technology has been mentioned by fund managers as a crowded trade. Given its strong gains over the past 6 and 12 months, that’s perhaps not surprising. Earlier this week, we published a sector switch recommendation - ‘out of tech and into financials’. Show More

How much does geopolitics really matter for markets?

Chris Watling

Last Wednesday’s wobble sent market participants and commentators scrabbling for the history books. With reports that Trump asked ‘James Comey to end a probe into the former national security adviser’, geopolitics seemingly became front and centre of investors’ minds (with markets wondering about possible impeachment). Show More

The oil market’s swing consumer

Chris Watling

A turn higher in oil prices in coming months and quarters, if forthcoming, should result in considerably weaker Chinese demand growth, as the authorities scale back their aggressive stockpiling policies. Weak underlying Chinese oil consumption, as well as high inventory levels, suggest that reduced stockpiling activity could be reasonably sharp.... Show More

Regime shift or reflationary bounce?

Chris Watling

Only four months ago, markets were gripped by deflationary fear and the prospect of a US recession. The outlook has since brightened: asset prices have rallied, inflation readings have risen sharply, macro data has improved, and central banks have softened their tone. Is this a shift in US fundamentals, or... Show More

AUD rally looks overextended

Chris Watling

The recent rally in the Aussie dollar (up 13% from mid-Jan to mid-March) is overextended on a number of measures: Net speculative positioning has moved from markedly net-short to net-long; medium term AUD models are back on SELL, and price action is technically poor. The AUD looks set to retest... Show More

The message from the banks

Chris Watling

Year to date, the worst performing major global sector is financials. This sector includes a number of subsectors but is dominated by the banks. The long-term share price behaviour of banks is particularly troubling. After marked weakness at the start of this year, many of the world’s largest banks share... Show More

Nicholas - Thank you for your feedback, we have some sympathy, but we are not entirely convinced by your comments (or more precisely Buffett/Munger’s comments). Theoretically, it is possible to distinguish ‘value’ and ‘growth’. Historically, stocks have been assigned as ‘value’ or ‘growth’ dependent upon their book-to-market ratio (i.e. the inverse of the price-to-book ratio) as outlined by the work of French & Fama in the 20th century. Other modern definitions include other fundamental factors such as recent EPS growth rates, dividend yields, and sales per share growth rates (full definitions are available on index providers’ websites). Whilst the terms ‘value’ and ‘growth’ may be misleading and some investors may not feel they are appropriate, they do refer to clear, well laid out fundamental screens that are widely used by equity fund managers. Indeed the chart we show in the blog shows that different ‘styles’ appear to perform well in different macro environments; specifically, as we illustrate, with those different environments dictated by the trend in the nominal risk free rate (i.e. US bond yields). Whilst we appreciate that one may take issue with the concepts’ labels, the relative performance resulting from their different fundamental characteristics is relevant to equity investing.

On Value vs. growth -