Apr 4 2013, 06:40 PM
Latest research article: China's New Strategic Roadmap
KEY POINTS:
- The official growth target for 2013 has been maintained at 7.5% and slower long-term growth rates should be expected
- Controlling inflation and property market risks has become a larger priority for the central bank and the government has called for “prudent monetary policy”
- Emphasis has now been placed on implementing “proactive fiscal policy”, which will have positive longer-term benefits for the nation and counter less assistance coming from the central bank
- With improvements in external conditions, support from fiscal policy and attractive valuations, our outlook on the Chinese equity markets remain positive
Latest research article: Changes To Star Ratings 1Q 13: Lowering Ratings On Australia And Singapore
Latest research article: Why Investors Shouldn’t Worry About US Stocks At All-Time Highs
KEY POINTS:
- After a 10% gain in 1Q 13 (in USD terms), the S&P 500 closed the quarter at a new all-time-high
- While some may feel that the current price level of the S&P 500 suggests that it is time to cash out, we prefer to make the distinction between “price” and “value”
- Firstly, a comparison of the US market of 2007 and 2013 shows the disparity in “value”; US equities are more attractive now than in 2007 on various measures
- Moreover, investors should remember than earnings growth is a critical component of stock market returns, alongside dividend yield and PE re-valuation; over the past 66 years, S&P 500 earnings have risen 7.2% p.a., fairly close to the 7.1% gain for the S&P 500 (excluding dividends)
- It is more important to focus on the trend of earnings rather than price levels; it is on the basis of earnings growth that stock markets can make new highs and not be constrained by the highest index level achieved previously
- The recent rapid ascent of the US market also goes to show that stock markets can move quickly when investors least expect it
- Timing the market is a difficult art and we prefer to advocate a valuation-driven approach; our approach has incurred the wrath of investors in the past especially when markets have been turbulent, although our upgrade of the market in late-2011 (although unpopular at the time) has since been vindicated, as has been our upgrade of the US market in late 2008
- Economic indicators we track point to better growth ahead for the US economy, spurred by an improving housing market alongside better job market conditions
- We believe that a combination of economic tailwinds and attractive valuations will spur the market to further gains, with a forecasted return of nearly 13% annualised (including dividends) for the market by end-2015; we maintain a 3.5 star “attractive” rating on the market
This post has been edited by wwl86: Apr 4 2013, 06:45 PM
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