Global Investing

With a week to go in January, global stock markets are up 3.8 percent – gently nudging higher after the new year burst and with a continued evaporation of volatility gauges toward new 5-year lows. That’s all warranted by a reappraisal of the global economy as well as murmurs about longer-term strategic shifts back to under-owned and cheaper equities. But, as ever, you can never draw a straight line. If we were to get this sort of move every month this year, then total returns for the year on the MCSI global index would be 50 percent – not impossible I guess, but highly unlikely. So, at some stage the market will pause, hestitate or even take a step back. Is now the time just three weeks into the year?

Well lots of the much-feared headwinds have not materialized. The looming US budget ceiling showdown keeps getting put back – it’s now May by the way, even if another mini-cliff of sorts is due in March — but you get can-kicking picture here already. The US earnings season looks fairly benign so far, even given the outsize reaction to Apple after hours on Wednesday. European sovereign funding worries have proven wide of the mark to date too as money floods to Spain and even Portugal again. And Chinese data confirms a decent cyclical rebound there at least from Q3′s trough. All seems like pretty smooth sailing – aside perhaps from the UK’s slightly perplexing decision to add rather than ease uncertainty about its economic future. So what can go wrong? Well there’s still an event calendar to keep an eye on – next month’s Italian elections for example. But even that’s stretching it as a major bogeyman the likely outcome.

In truth, the biggest hurdle is most likely to be the hoary old problem of over-inflated expectations. Just look at the US economic surprise index – it’s tipped into negative territory for the first time since late last summer. Yet incoming US data has not been that bad this year. What the index tells you more about has been the rising expectations. (The converse, incidentally, is true of the euro zone where you could say the gloom’s been overdone.) Yet without the fuel of positive “surprises” we’re depending more on a structural story to buoy equity and that is a multi-year, glacial shift rather than necessarily a 2013 yarn. The start of the earnings season too is also interesting with regard to expectations. With little over 10 percent of the S&P500 reported by last Friday, the numbers showed 58% had beaten the street. That’s not bad at first glance but a good bit lower than the 65% average of the past four quarters. On the other hand, it’s been top-line corporate revenues that have supposedly been terrifying everyone and it’s a different picture there. Of the 10% of firms out to date, 65 percent have reported Q4 revenues ahead of forecasts – far ahead of the 50% average of the past four quarters. Early days, but that’s relatively positive on the underlying economy at least.

And the Apple story is yet another case in point. Even though its shares fell about 10% in after-hours trade on anything from a slight revenue miss, future guidance and market-share concerns — it says more about the scale of expectations built into this one, if spectacular, corporate story. Look at the actual numbers  and you see in absolute terms, its supposedly worrying iPhone shipments were still up 29% over the year to a new record and iPhone sales in greater China more than doubled. A tough crowd to please now, clearly, but again telling us more about expectations that underlying activity. For what it’s worth, Apple’s bottom-line earnings beat the street. 

And finally, the other big – structural rather than cyclical – story in play over the past 10 days has been the unwind of the euro safe-haven plays – hardly surprising given that now two of the three bailout countries (Ireland and Portugal) are back in the private markets again default-free and the one-time big worry (Spain) is drowning in foreign creditors all of a sudden. Bund, Treasury and Gilt yields of course have all been pushing higher, even though QE limits that move. But perhaps the biggest manifestation of the safe-haven exit has been the 3% Swiss franc retreat – who said the SNB couldn’t hold the line? Sterling’s slide too is as much to do with this as it is related to Cameron’s EU sideswipe. Watch out for others too – Nordic markets perhaps? London property? Gold is still higher on the year, but that just underlines the fact it was always more an inflation-hedge rather than haven from systemic shocks.       

The euro zone just avoided recession in the first quarter of 2012 but the region’s debt crisis sapped the life out of the French and Italian economies and widened a split with paymaster Germany.

Click here for an interactive map showing which European Union countries are in recession.

The technology sector has been leading the way in the S&P 500 in performance terms so far this year with energy stocks at the bottom of the list. Since the start of this quarter financials have seen the largest reverse in performance.

One Apple chart that has been going down for 10 years is its forward P/E ratio:

Rising gasoline prices push up American’s inflation expectations for the next year:

Currency moves this year:

More than a “nice to have,” investor sentiment is running heavily on the side of environment, social and governance (ESG) factors, according to the latest Thomson Reuters Perception Snapshot.

Feedback from 25 global buy-side investors found that 84 percent evaluate ESG criteria to some degree when making an investment decision.

The remaining 16 percent say ESG issues are not considered until a company’s ability to generate high returns is hindered by these factors.

On our way to a meeting in London with a senior official of a sovereign wealth fund from an emerging market country, my colleague and I came across a van from a company called Sovereign Recovery.

How timely, we thought, given the billions of dollars emerging sovereigns have had to pour into local markets to revive their economies hit by sudden drainage of foreign capital by the credit crisis.

 The company, of course, is not engaged in any of sovereign economic recovery work — they are motor engineers who have contracts with leading transport operators including Transport for London.

The San Francisco Bay Area burnished its reputation as an innovation hub with the TechCrunch50 conference this week, a gathering of start-ups, venture capitalists, analysts and other tech industry insiders. Fledgling companies’ offerings varied from financial services products to widgets to the requisite array of social networking and gaming sites.

But a handful of outliers drew enthusiastic whoops and hoots from the audience watching on-stage demos. Panelists time and again drilled presenters on product scalability and revenue models, and one was ready to shoot down Birdpost.com – a Web site for birdwatching enthusiasts to track, compile and share bird observations – until he learned that roughly 18 million of those enthusiasts in the U.S. spent more than $32 billion on birding-related products and activities in 2001. By 2006, those figures swelled to 20 million active birdwatchers spending a large chunk of the $46 billion total that wildlife watchers across the U.S. spent on trips and gadgets.

“What we’ve really created is a framework for collecting,” Birdpost.com co-founder Ben Crockett said in a phone interview the  day after his TechCrunch presentation. “It really draws on that inherent desire we have to collect and catalog and know.”