Years of Bull Market Ahead of Us - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Years of Bull Market Ahead of Us 

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In this issue:
» Emerging markets most expensive in 9 years
» Best performing asset class since Lehman's demise
» Global pharma innovators making a beeline for generics
» Will China pay the price for fast growth?
» ...and more!!

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Ken Fisher, one of the longest running Forbes columnists and bestselling author of books like 'The Only Three Questions That Count' is in no mood to pull the plug on the recent stock market rally and believes that it still has a long way to go. In a wide ranging interview to Moneynews, Fisher, who is also the son of the famous growth investing guru Philip Fisher, opined that bull markets go longer than most people think they can and keep running. Quite a bold statement we should say. However, this isn't where his boldness ended. He had more to offer.

On hyperinflation, Fisher feels that it isn't too much of a worry right now because investors are thinking about it a lot these days and hence, what gets lots of mind space already gets priced into securities. Interestingly, Fisher mostly took a psychological view of things and very rarely spoke anything about stuff like valuations and fundamentals.

Indeed, if it were a self reinforcing rally where optimism fed on itself and led to more optimism, he perhaps would have been right. But the fact remains that the strong bull market of the past few months has not done anything to change things on the ground. There has been no significant improvement seen in things like consumer spending, business hiring and the like. And unless they show visible signs of improvement, the rally may peter out and could also lead to pessimism feeding on more pessimism, leading to a bigger than expected fall. Things are indeed fragile at the moment.

While Mr. Fisher is foreseeing a big rally in the years to come, emerging markets are already giving jitters to investors given that these are currently trading at their most expensive levels in nine years. As per Bloomberg, the MSCI Emerging Markets Index in now trading at 20 times reported earnings for the first time since mid 2000. It also reports that foreign investors are now concerned that valuations are stretched. At this point, one group of investors believes that the economic recovery is coming through, while another group like Warren Buffett, Bill Gross of PIMCO and other hedge fund managers believe that growth rates will be lower once the massive dose of liquidity eases.

It may be recalled that foreign institutional investors (FIIs) came back to India in droves in March, when the rally began (or in fact, causing the rally). Any shift in stance could easily reverse the gains. We advise investors to exercise caution in buying stocks, especially ones that are worthless, lest they get caught in the stampede.

Descriptions: O&G-Oil & Gas, CG-Capital Goods, HC-Healthcare
Data Source: CMIE Prowess

01:59  Chart of the day
Today's chart of the day shows the returns generated by various asset classes - stockmarkets across different countries, gold, and crude - since September 12 2008, the last trading day before Lehman Brothers went bankrupt in the US. While the Chinese markets and gold lead with 43% and 31% gains respectively, the US markets and crude oil trail with declines of 16% and 29% respectively. India's benchmark index - BSE Sensex - has also been amongst the leading gainers, up around 16% since then.

Note: Country names are representative of the respective benchmark stockmarket indices
Data Source: Yahoo Finance, Kitco, CNNfn

So does this mean that we have left behind the risks that surfaced a year ago? Not really, we believe! While the worst seems to be behind us, there are still several cockroaches hidden in the kitchen that might jump out some day and spoil the show. High inflation and Chinese bubble are just two of them!

The generics model which once upon a time was looked upon with disdain by global innovators is now finding favour with the latter. Realising that their research pipelines are drying up and that the generics market is growing faster than the global pharma market, global pharma innovators are now making a beeline for generics companies. First it was Daiichi Sankyo acquiring a majority stake in Ranbaxy, then it was Pfizer entering into a pact with Aurobindo Pharma and the latest news doing the rounds is that GSK Plc is looking for a stake in Dr. Reddy's with whom it already has a pact to market branded generics in semi-regulated markets. Already generics are garnering a lot of favour in the developed countries whose governments are looking to reduce healthcare costs. Thus given the immense pressure to cut down costs, we believe that this latest trend of MNCs getting into generics was inevitable.

In a very interesting initiative on accountability, Prime Minister Dr. Manmohan Singh has asked two of his ministers - Health Minister Ghulam Nabi Azad and Rural Development Minister C P Joshi - to speed up their deliveries. While Mr. Azad has been asked to fast track work on rural health and modernisation of the All India Institute of Medical Sciences in New Delhi, Mr. Joshi has been reminded of ineffectiveness of the rural employment scheme in several states. The PM has in fact given these ministers 30 days to submit their reports on their deliveries.

Truly a path breaking event for Indian politics! Anyways, how far will it go in terms of implementation remains to be seen.

As per reports coming out of China, the country's industrial production and investment growth has gained pace. Easy money, and a flush of that is what we believe is leading to a strong performance of the Chinese economy. And this doesn't seem sustainable given that consumption growth in the world's third largest economy country hasn't picked up much pace. It's only that the country seems to be fast-forwarding its infrastructure investments by building today what it would have built tomorrow, thereby raising doubts whether all this is really sustainable.

We wonder if global investors are confusing the Chinese fast growth (now based on aggressive lending) with sustainable growth. We have already realised from the US experience that forced lending is bad lending. And like the US is paying the price now, China will have its share of agony in the years to come. The only question is - when and how much. We have no answer to that!

Stocks in India were trading weak at the time of writing, with the BSE-Sensex trading lower by around 15 points (0.1%). Only Japan accompanied India in being in the negative territory today. Among other Asian markets, while China closed up by around 2.2%, stocks in Hong Kong ended 0.4% higher. European markets have opened on a mixed note. Gold, at US$ 997.8 an ounce, is trading higher by around US$ 1.6.

04:53  Today's investing mantra
"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Isaac's talents didn't extend to investing. He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men.' If he had not been traumatized by the loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases." - Warren Buffett
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4 Responses to "Years of Bull Market Ahead of Us"


Sep 13, 2009

Excellent. Comments on Newton's law of motion r eyeopeners to small investors. Carry on


Sunil M S

Sep 12, 2009

How Isaac Newton washed his hands off stock market was interesting reading. Predictions about stock market often prove to be totally wrong before they prove to be right. The trouble with them all is, they never come with a timeline. Predictions like price will rise 20 percent are sweet to hear, but without the mention of a target date, are useless. True, it's sheer madness, otherwise, nobody would have sold Satyam Computer at a mere 6 rupees 30 paise.



Sep 12, 2009

iam intersted



Sep 11, 2009

Funny, how everybody keeps telling that the Chinese are building today what they would naturally build tomorrow and so its not sustainable. I guess then the Indian version is better, build 20 yrs later what should be built today.

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