• MARCH 5, 2004

World Indices 2004 - A check

Equities outperformed all asset classes in the year 2003 on the back of improving (in some cases stabilising) economic performances. Amongst equities also, there were varying performances by stock markets across the world with the Asian bourses clearly outperforming their western counterparts (see table below). Rather, it would be more correct to say that emerging markets beat the developed markets in 2003 owing to their strong growth prospects and relative attractive valuations. But, with 2003 having already ended, that is history now! Here in this article, we look at the present i.e. 2004 and how have the various world indices performed to date and the probable reasons for the same.

World Indices: A mixed picture...
IndexCountry2003 % gain2004 % gain*
Shanghai CompositeChina10%11.5%
Straits TimesSingapore32%7.3%
Hang SengHong Kong35%7.0%
Nikkei 225Japan24%6.8%
NasdaqUnited States50%2.6%
FTSEUnited Kingdom14%1.8%
DowUnited States25%1.3%
* As on March 4, 2004

Akin to last year, the Asian stock markets (barring BSE-30) have continued to outperform their peers in the developed world. This could be attributed to the continuing strong prospects of these (Asian) countries in wake of the various positive developments like reforms, outsourcing opportunities, export growth, improving per capita income and the 'China' factor.

While various reform initiatives (especially in banking) have led to the Asian economies becoming much more stronger since the crisis of 1997, the outsourcing and export opportunities continue to provide the necessary impetus to their economies. Owing to their low labour and production costs not only are many Asian economies capable of taking significant advantage of the growing outsourcing trend, but this also provides them with an edge in exports, especially IT exports (electronics).

Moreover, considering the improving per capita incomes and favourable demographic structures, which comprises of a larger proportion of younger population, it would lead to higher domestic consumption of a wide range of goods especially considering the fact that the current consumption base is much lower compared to the developed economies. Furthermore, last but not the least, China has been spearheading the growth in the Asian region, whose GDP has been growing at a blistering 8%+, leading to increased consumption of practically every item, which has not only led to increased trade within the region but also decreased dependence of Asian economies on the developed markets for trade.

In contrast to the encouraging scenario above, the developed world has been plagued by slower economic growth (EU) and jobless economic recovery (US). This has been the primary cause for the lackluster performance of the developed markets in 2004 so far. In case of the US, another reason affecting sentiments is the growing deficit (more than US$ 500 bn) of the US economy, which has put to question the various tax incentives announced by the Bush administration. Now, as far as the Indian stock markets is concerned, the subdued performance can be attributed to a slew of domestic developments, primary of these being the uncertainties with respect to the forthcoming general elections, as it would be a key determinant in the continuance of the current reforms process underway in the economy.

However, though the Asian stock markets have registered astonishing gains in 2003 and have continued with their performance in 2004, they look attractive even at current valuations. Majority of the Asian economies (including India) are currently trading in the region of 14 times to 17 times their 2004 earnings, which is relatively attractive compared to the P/E valuations of developed economies currently trading in their early twenties (20 times). Thus, to conclude, though there may be bouts of volatility in the short-term, the Asian growth story (including India) remains intact.

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